When you are looking for a car valuation, there are two, and only two, prices for a used car… the Retail price and the Trade price… sometimes called “top book” and “bottom book” There are several places where you can find these two values for your car (which we will look at later) but the fundamental fact is that if you trade in your car you will only ever get the Trade price for it – it doesn’t matter what your car is, how good it is, how few miles it’s done, what dealer you go to, whether it’s the main dealer for your make of car, or whatever – you will only ever get the Trade price for your car in a part exchange deal. This is your true car valuation.
It may not be what the dealer tells you but it is a fact! It will also certainly be less than you think you should get for your car but, once you accept this, it actually puts you in a stronger position and really takes the wind out of the salespersons sails and prevents them from using several of their clever tactics on you. You will find it easier to understand what kind of deal you are REALLY being offered, and be more able to negotiate a better deal.
Trade price for your car
When a dealer takes your car in part exchange for another, they have two choices as to what they can do with it, and either way they still need to make a profit on it:
A. If your car is “nice” – good condition, low mileage, smart enough to not look out of place on their forecourt – they will do just that… put it on their forecourt and sell it. Before they do that they will have to spend money on it:-
Your traded in car will need servicing. You may have just had it serviced yourself to make sure that it ran well when you offered it to the dealer as a part exchange but no dealer would trust that – they will service it themselves for the same reasons, they want to make sure that it runs well when someone else has a test drive with a view to buying it or doesn’t break down a few days after its been sold!
Large dealers have their own service department which is run as a separate business which is accountable and has to make its own profit. They will not service your traded in car (for the sales department) for nothing. They will charge the sales department - maybe not the full retail service rate, but charge they will, and this can be several hundred pounds £££.
Smaller dealers may not have a service department but may employ a mechanic (they have to pay his wages £££) or may send the car to another garage that does servicing for them £££.
Often, before they put your old car on the forecourt, there are repairs that need doing – the odd tyre, oil leak, brake pipe etc etc. If they are going to put their name to the car and sell it through their forecourt they have to make sure that everything is right… £££.
Your old car will always be thoroughly and professionally cleaned. Larger dealers subcontract this work to a Valeting company who often have permanent staff working within the dealer and will charge them a fixed fee per car £££. Smaller dealers might do it themselves but again - vacuuming, steam cleaning inside and out etc – it all takes time and costs money… £££.
MOT Test and Tax
If the dealer is lucky, you will have just tested the car for a year – in which case they need do nothing. As far as the road tax is concerned, a dealer will normally cash in any remaining tax disk on each car they get in part exchange (this is explained more in a later section) so YOU will end up paying for 6 months or a years tax on the car you are buying. If not they may well have the car tested which could involve further repairs and expense if it doesn’t pass… £££.
Nearly all dealers sell their used cars with some sort of warranty. This is basically an “insurance” that they pay for £££ so that if (be careful some warranties are better than others in what is actually covered!) something went wrong with the car after they sold it they can claim the cost of the repairs from the warranty/insurance so that the person they sold the car to doesn’t have to pay.
Regardless of how good or nice your part exchange car is, the dealer WILL have to spend money on it to make sure that it is right for them to sell. So, let’s say they paid you £xxxx for the car as part of the deal, then they paid out £??? for all the above mentioned things to be done to it, so it now stands them at £xxxx + £???. THEN they need to sell it at a price which will return them a good profit. What price will that be? What is the maximum they can realistically ask for it? Yes, the Retail price. They know that there are many places where you and I can get the guide retail price for any used car, so that is the price that they will advertise it at. Well… in fact they may well ask for more than this “Retail” price because of the Warranty that they give (you wouldn’t get that if you bought the car from a private individual) and the fact that they want the chance of making the maximum possible profit on the car.
B. If your car is, what shall we say, not as described above – not suitable for them to put on their forecourt (old, high mileage, tatty etc) - they will sell it to a Trader. They WON’T, as is often thought, take it to a car auction themselves. They don’t have the time or the inclination. Their business is selling new and/or used cars through their showroom. That is where they make the most money. Any car that they take in part exchange which they don’t want to sell through their forecourt will be sold to a Trader. These are usually self employed, one-man-bands who regularly visit the dealers and buy these types of cars from the Salesmanager. The dealer/salesmanager will always need to make some profit on the car when it is sold to a Trader.
The Trader might then put it straight into the auction or spend a bit of time/money on it and sell it privately. Either way, the trader obviously needs to make a good profit on these cars too. Again, the maximum the Trader can realistically expect to get for it is the Retail price.
So at every stage, the car you have just put in part exchange for your new one, has to be sold on at a profit and the maximum price it can be sold for is the Retail price (unless someone gets really conned!).
Don’t make the huge mistake of thinking that, because your car is really nice, a dealer will take it in part exchange and value it at anything approaching Retail price because they are “so keen” to sell you their car. They may be saying this to you but… Hell would freeze over first! It just does not happen. Your car valuation is the Trade price and that’s that. If a dealer seems to be offering you more than Trade price it is simply a tactic to make you think you are getting a better deal than elsewhere and will probably result in:
1. Them adding more onto the price of the car they want to sell you.
2. As they have a certain amount of profit in the car they are trying to sell you, they may reduce this profit by over-inflating the true valuation of your car. This is not too bad – they are effectively giving you a discount without telling you – but you don’t know how much discount they are “giving” you and (if you are human!) you will be swayed by the idea of getting more for your car than the dealers down the road have offered you. Deals like this simply work in the dealer’s favour as it makes it harder for you to compare the deal with another and, in apparently satisfying your need to get a “good” price for your car, they are manipulating you into signing up for a deal that you could probably have bettered – and you will better it, once you have finished reading the other sections on this website!
In either of the above situations what usually happens then is…
3. Once you have agreed a deal and got all excited about your new car, they ask you “Does it matter to you what price your car comes in at ON PAPER, as long as you end up paying the agreed price/repayments?”… “No” you will say, because you are sitting there feeling smug that you got a really good price for your car and that that this is just an accounting fiddle for the dealer. The real fiddle is that you have been manipulated and fooled into doing a deal which was not all it appeared to be. You most probably could have done better! The price that they put “on paper” is more likely to be the Trade price for your car ie. the real valuation, what you actually got for it... the price you could have got from ANY dealer. However, it’s too late then – you have been taken in, made to believe that you got a higher price for your car than you could have elsewhere… and this DOES affect your judgement on the rest of the deal. The idea of getting “more” for your car takes you out of the market, stops you shopping around any further and you end up doing a deal which could easily have been bettered!
We all know that we lose a lot of money on our cars. It is so annoying to buy a car and then sell it 1, 2 or 3 years later and find that the car has lost so much value. Dealers play on this – if they seem to be offering you a really good price for your part exchange, you can’t help but think that you should do a deal there because at least you haven’t lost as much money on your car as you thought, or what another dealer down the road says. Sadly, you are just being manipulated. It takes your eye of the ball and you will find it more difficult to isolate and rationalise other parts of the deal – you are making it easy for the dealer to conceal what is really going on.
Some people actually hawk their car around several dealers trying to find the best valuation for it – even before they have decided what car they are going to buy. For them, the results of doing that influences not only where they are going to try to buy a car from, but often what car they are going to buy. Placing that much importance on what price different dealers will offer you is wrong. When you trade in, your car valuation is the Trade price... live with it!
Placing ANY importance on how different dealers value your car is wrong. DON’T DO IT! When you understand that you will get the Trade price, wherever you go, you are able to work on a level playing field and you won’t be (misguidedly) influenced by silly “valuations” from dealers which are just trying to manipulate you…
* Depending on the sales techniques they use, some dealers will be happy to say immediately what price they will allow you for your trade in. These are the ones who are most likely to offer you “too much” for your car… part of their plan to draw you in! Of course, if you do get drawn in, you never get this inflated price for your car – but it will be too late then, you have already been fooled.
* Other dealers might use different tactics and avoid telling you how much they would value your car. These dealers are more likely to offer you the realistic (Trade) price for your car – but they don’t want to tell you that, because they know that the potential customer will walk away and go to another dealer where they have been told they will get £xxx more.
* Often, rather than tell you how much they will allow you, dealers try their utmost to get you to tell them how you value your car. Then, whatever price you say, they tell you that they will try to get this price for you. This, again, draws you in. You can’t help thinking that you might get that price so you stay there and go along with the sales patter and see how the deal finally turns out – you are being manipulated at every stage!
So, when you trade in your old car you must understand that your car valuation is the Trade price. If one particular dealer offers you more than this don’t, whatever you do, think that you are getting a good deal. It is simply one of the clever tactics that car salespeople use to fool you.