Buying a Car - Part IConsumer Reports® makes the point that the purchase of an automobile is actually three separate transactions. (1) You are selling your old car. (2) You are purchasing a new (or used) car. And, (3) you are financing the cost of these transactions. You may challenge this three-part analysis by saying that you plan to simply trade in your old car and pay the difference from personally held monies. In fact, you are selecting one of several options under (1) above and one of several options under (3).
Due to space limitations, I will address only the disposal of your existing automobile. Later blogs will address the other two transactions. For all three transactions it is helpful to understand the financial parts of the automobile business. There are three major profit centers at a dealership: • Sale and financing of new cars • Sale and financing of used cars • Servicing (parts and repairs) of cars
It is interesting to note that dealerships make the least profit from the sale of new cars. They make more profit from the sale of used cars and the most profit from the sale of parts and service preformed on all cars whether sold by them or not. This is important to know if you plan to trade your old car. The actual (wholesale) amount you receive as trade-in value will allow for the full cost of reconditioning as well as a profit margin larger than that on new cars when offered for sale by the dealership. Their option is to offer you an amount at or below what they can receive from the sale of your trade-in at a wholesale auto auction. Always remember, dealerships obtain used cars as trade-ins or purchase them at auto auctions, both at a wholesale price. They then sell them at retail. Simply put, that’s the business they are in.
The only way to determine the actual value of a trade-in is to first inform the dealer that you plan to sell your old vehicle yourself. Then, negotiate the lowest possible cash price for your new vehicle. Next, ask what value the dealer would allow on your old vehicle against the negotiated price. You may be surprised how low this amount can be. If your old car is in relatively good condition, you may be able to sell it yourself for significantly more money than the actual trade-in value as determined above. I have sold several cars to staff here at Sunnyside who have been happy with them. This works for both parties if your old car has been well cared for and has no known problems.
Another option, if your old car is 10 years old or older and has over 80,000 miles, is to give it to a grandchild or someone else who may need a vehicle. The actual trade-in value or private sale value is minimal.
By disposing of your old car as a separate transaction from the purchase of its replacement, one can greatly improve the probability of paying the least amount of money possible to obtain your next vehicle. When you leave the dealership, the transaction is complete and the dealer knows what profit they have made. No money is “left on the table” in case they underestimated the reconditioning costs or future sales price of a trade-in.