Understand the dealer's perspective Regardless of what the auto pricing guides say, it's up to the dealer to accept your trade-in. So, it's important to look at your car or truck from the dealer's point of view.
One of the dealership's major concerns is determining how quickly your trade-in is likely to sell to another buyer, according to Rickey Gilbert, a manager who handles trade-ins at the Marietta Toyota dealership in Marietta, Ga.
"When someone comes in with a trade-in, we look at the vehicle, walk around it, check it to see if it's had paint work (which can reduce the value), and check to see if any damage has been done to it," says Gilbert. "We'll also drive the vehicle. We'll check to see what repairs it'll need to get up to standard (for retail sale), or we have to decide if it would cost too much to have the repairs done."
In the latter instance, he'd sell the vehicle on the wholesale market, Gilbert says.
Formula for success
So, how do you know if you're getting a fair deal on your trade-in?
Scott Painter, CEO of the California-based automotive research company Zag, offers the following advice:
"For a resale, the average dealer is looking to make between 2 (percent) and 4 percent on a transaction," Painter says. "So take whatever your car's value is and add in whatever cost it would take to refurbish the vehicle. Then, add in 2 (percent) to 4 percent, and as long as the trade-in price you're given is in that window, it's probably a fair deal."
Gilbert says dealers typically use third-party resources like Manheim (a wholesale vehicle auction operator) and the Black Book (a guide for used car prices) to get current information on vehicle values.
"We also have a used-car manager who's at the auctions every week, so we can see what cars are selling for," says Gilbert.
The car prices at your local dealer could be different from the values published in the Kelley Blue Book.
"The values we characterize, even though they're pretty accurate, are still just a guide," Nerad says. "Each used car is an individual item. They vary in condition, mileage, color and equipment level. There is also some regional variability as to what's popular and what's not."
"Take the larger SUVs with V-8 engines, for example," he says. "Even if we use one of the books as a guide (for vehicle values), that doesn't mean that the vehicle is going to bring in that amount (at retail)."
High fuel prices have shrunk the market for autos with gas-guzzling V-8 engines, and the guide books might not have kept up with the declining values. In those cases, dealers aren't motivated to pay book prices for the autos.
Smaller car trade-ins that are in great condition fare better right now.
"If you have a clean, used car, with no accidents and no damages, and if it's a four-cylinder or six-cylinder engine, it will bring a fair price," says Gilbert.
Of course, it's up to the consumer to research in advance what that fair price could be.
If you're trading in a newer-model used car, then surprisingly, it could work against you. If it's a year old or less, the car could still be competing with new autos of the same make and model. In addition, the manufacturer may be offering special incentives for the new car.