CAR FU: Self-Defense for Car Buyers

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The worst thing any car salesman ever has to do is explain to a customer that the car they are trading in isn’t worth much money. Or any money. This is how the conversation often goes:

Sales Manager: “What’s he tradin’ ?”

Salesperson: (handing over a form) “This one here…”

SM: “Ouch. What does he think it’s worth?”

SP: “$11,500.”

SM: “Where did he get that number from?”

SP: “ I dunno. “.

SM: “Let’s open him up a bit…” (scribbles on paper, hands it to SP)

SP: “Oh…oh, no, no, no…you’re kidding, right?”

SM: “Just take it out there. Now.”

The difference between what folks think their cars are worth and what they are actually worth is dramatic. The Kelley Blue Book (kbb.com) assesses the values of cars in various geographical markets. They are very good at what they do, so good that many credit unions use the retail KBB to determine how much to loan on a purchase (CU’s usually use retail numbers for their figgerin’, while banks use wholesale figures), and many dealers use Kelly as a pricing guide.

But one thing that Kelley does not accurately measure–and barely pays lip service to– is the real trade-in value. The problem is this: In the real world, a car is worth exactly what it can be sold for at that very moment in time. The sun goes down, the sun comes up, the car is worth less money.

There is actually another Kelley product, one that many dealerships use to value and manage their used car inventories. Unlike most credit unions, banks base their financing formulas on wholesale value rather than retail, and they respect the numbers issued by this other book enough to base their financing on them. This other book(really a software program) is known as ‘Karpower’, and it takes into full account the costs of reconditioning and the necessary replacement of wear and tear items. It is a far more accurate measure of value….but it is still not the BEST measure of value.

The only real way to determine a cars value is to answer this question: How much can I sell this for in the next ten minutes? Only dealer auctions provide any real-world perspective. Using this criteria, the amount that can be fetched at the next available auction is the actual value of the car (minus costs of transportation and auction personnel).

With the typical labor cost for mechanics at or near a hundred dollars an hour, any bill for any work can run to a thousand dollars or more very easily. The used car department pays the service department for the work, the expense is added to the base cost of the vehicle, and the amount left between the asking price and the amount already invested is the margin. The smaller the margin between the KBB retail price, a price many buyers are well familiar with, and the amount the dealership has invested in the car–how much they are “in it for.”–the less bargaining room they have. In other words, the more they give that guy for his trade-in, the less they will be able to bargain with you on the same car!

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Filed under: Buying a Car, On Depreciation, The Car Business