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Monday, December 31, 2012

Nobody Knows What Your Used Car Is Worth

A lot of people think that all used cars have a specific value and they can learn this by looking it up in the “Blue Book” or some other used car wholesale book. Nothing could be further from the truth. The wholesale books that dealers use and those that are available online to consumers have varying degrees of accuracy, but you can’t rely on a book tell you the best price at which you can sell or trade in your car. The most accurate book is the Manheim Auto Guide because it’s based on the latest wholesale auctions nationwide and it’s updated weekly and daily online. The least accurate book is the NADA guide which relies solely on surveys sent to dealers. The dealers exaggerate the wholesale value of their make to make it easier to take in trades.

All of the wholesale books, except NADA, are based on prices of cars sold at auction. However, you must understand that those prices don’t give you an accurate price that you should expect for your trade. A car sells at an auction for the price offered by the highest bidder if the seller chooses to accept that bid. I often don’t sell my used cars to the highest bidder that week because I might get a much higher price the next week. Lots of things affect the level of prices at a car auction…the weather, holidays, bribing the auctioneer and bribing the buyers. On a cold, rainy day when few dealers show up to buy or sell cars, prices are lower as well as shortly before and after holidays. Sometimes it happens that a buyer “greases the palm“ of the auctioneer so that he “doesn’t hear” (fast gavel) the higher bid from another dealer who bids higher than the dealer who has let the auctioneer know the price at which he wants to buy the car. Sometimes the sellers pay the buyers cash under the table to bid an unrealistically high price for their car. A car doesn’t even have to go through the auction block for the owner to believe it was “sold at the auction”. Buyers and sellers can make a deal before it goes “through the block”…very cozy, only one bidder. Why would they do that? Often the buyers and sellers are employed by the dealer who actually owns the car. The used car manager or wholesale buyer employed by the dealer might pay $2,000 too much for a car if he can earn $500 cash in his pocket from the seller. His boss, the dealer, is never the wiser. Let me hasten to add that the Manheim auctions are very careful to police these kinds of shenanigans and never encourage them. However, as in every large organization (Manheim is the auto auction in the world), there are a few rotten apples.

OK, then if the books are wrong and the auctions are wrong, then surely the car dealer must know the value of my trade-in….WRONG AGAIN. I have a little “test” on used car appraisal knowledge that I administer to my sales managers from time to time. By the way, my managers are among the most knowledgeable and competent anywhere. This isn’t just my opinion but that of all of their peers in this market. My test goes like this. Without prior notice I randomly select a car from among the 100 or so that come into my service department each day. I ask each of my 8 mangers individually to appraise this car for what they think the current wholesale market value is. They keep their appraisal secret from the others and write it down on a piece of paper and hand it to me. I’ve been doing this for 30 or more years and I’ve never had a variance in appraisals of less than $3,000. Some have been greater than $10,000! The reason I do this is to remind all of my mangers of exactly what I’m explaining in this article….Nobody knows the exact value of a used car. That’s important to my managers because under appraising a used car can cost us a sale. Over appraising a used car can cost us a wholesale loss at the auto auction. Therefore we always check and recheck our appraisals and go so far as to call other dealers and even put cars on Ebay. Another good reason not to accept only one dealer’s appraisal is that dealers will often knowingly undervalue your trade-ink, especially if you’ve negotiated a very low price for your new car. The dealer vernacular for his is “stealing the trade”.

Now that we’ve established that nobody has any idea what your trade-in is worth, what does that mean to you? It means you should stop worrying about getting an accurate appraisal because there’s no such thing. However, what you should positively insist on is getting the highest appraisal. In fact, you should hope that the guy who gave you the highest appraisal was very inaccurate and made a huge mistake that will cost his dealership a large wholesale loss at the auction. You accomplish this by never accepting only the appraisal by the car dealer from whom you’re buying your next car. Before you allow him to appraise your car, you should get at least two other bids from dealers of the make of car you are buying. For example, a Ford dealer will usually appraise a Ford for more than a Honda dealer because more people wanting to buy a used Ford will shop the larger selection at a Ford dealer. Deal directly with the used car department at these other dealerships. Tell the used car manager that you need to sell your car for cash and that you’re getting two more bids from two other dealers. If you have the time to get more than two more bids it’s even better. Another good place to get a bid on your used car is from CarMax, the largest retailer of used cars in the world. They buy lots of cars directly from owners even when they don’t buy a car from CarMax. Their prices are sometimes higher than dealers will offer you.

After you determine the highest bidder, if it’s not the dealer from whom you’re buying, give him the right of last refusal. If he can match the price from his competitor, you save the sales tax on the price of your trade.



6 comments:

  1. Is there any exact index that may help in calculate that net 'worth' you are talking about? Let us know the factors contributing towards calculation.

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  2. The price of used cars will vary from time to time depending on the dealer and its buyer. A dealer must be wise in choosing a buyer because they will usually tell you it’s the highest appraisal you can get in town. In the end, it’s best to entertain multiple buyers, so you can compare offers and decide how much you want to sell your car.

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  3. this is a great read and some great tip. There are many factors in the price of a used car and really even if they are the same car they still might be worth different values to different people. Just get the most you can, great advice!

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  4. The rate of a pre-owned vehicle is greatly relying on its condition as well as consumption. Consumers will need to decide on the type and automobile status ideal for their personal lifestyles, financial constraints, and requirements. Practicality and also reliability are the causes that take second hand automobiles straight to the top.

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  5. Mr. Stewart;
    I appreciate educating people. My issue is when a car is totaled and an insurance company says we will compensate you this much by averaging all the cars sold recently, How do I refute that by my own facts. In other words, how do I calculate what is my car's worth in order to show them they are wrong or not. Is there any procedure I can follow? Thanks in advance for your answer.
    Sam

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  6. Dear Sankaram,

    If the replacement value of your car that your insurance company comes up with is too low, you definitely should dispute it. Check with local dealers who are franchised to sell that make and get their used car managers to give you their written opinion. The Manheim auction guide is also the leading written authority on used car values. You can always sue your insurance company to dispute their claim.
    The amount of the dispute would probably be small enough so that you could represent yourself in small claims count or hire a lawyer who would work for a contingency. Insurance companies would rather settle than go to court but they often try to wait you out until just before the trial.

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