Used Car Prices: What's My Car Worth? Myths And Facts

What’s my vehicle worth? What a question! I wish that after 20 years in the automotive industry there was a simple answer. One would think that with all the information available it would make prices and values easier to obtain. In fact, in many ways, the numbers are more unclear than ever.

The following e-mail conversation regarding retail car prices and trade-in values highlights the confusion and misconceptions about automobile price and value.

This conversation occurred between me/Ted, the dealer, and Rich, the customer...

[Begin Email]

[Ted]

Hi Rich...

Donna loves the 2006 Volvo. It’s a perfect fit!

Again retail value is: $23,800

Here's what Medway Imports can do:

2006 Volvo S40 Price.............$18,995

2001 Chevy Impala Trade-In Value…........$4,000

Thanks Rich!

Note: the Volvo is still under its factory 4-Year 50,000-mile warranty, free road side assistance…etc.

[Rich]

Hi Ted,

Thanks for the information. The Volvo certainly is a great price, but isn’t my Impala worth $6,000-$7,000?

Kelly Blue Book lists the private party value at approximately $7,995. I know that does not mean it will sell for that amount. However, most of the ads that I have been seeing reflect a range of $7,000 to $9,000.

I would guess that based on the retail prices, the actual sale price would be discounted by $1,000-$1,500. That would mean a reasonable expectation would place the value at $6,000-$7,000.

[Ted]

You’re right Rich…$6,000-$7,000 is certainly a reasonable "retail value" for the Impala, but research shows it’s actually only selling for around $4,000.

Interestingly, based on your math of knocking $1,000-$1,500 off private party bluebook would put the 2006 Volvo at a "reasonable" price of $22,800, as it retails for $23,800 to $24,500 depending on which source you use.

The facts are, however, neither the Impala nor the Volvo will sell for these retail values—not in today’s market anyway.

[Rich]

I can lease an Infiniti which would probably cost me less on a monthly basis. My partner just leased a 2007 loaded Infiniti for 39 months, (78,000 miles) for $558.00 month. Cap reduction was only $595.00.

I'm guessing that I could lease the same car for 3 years with 36,000 miles for no more than $400/month.

They’re also willing to give me $7,000 for my 2001 Impala.

I'd appreciate your thoughts!

[Ted]

Hi Rich…

Your guesses “might” be close; however, this is a classic example of the confusion surrounding trade-in values and the actual vehicle worth.

That $7,000 they will pay you is called a "feel good" number. Dealers use it all the time, and then whack you on the retail sale end of your new car.

In other words, as a dealer, I will gladly give you $7,000 for your Impala provided you’re willing to pay $22,800 or more for the 2006 Volvo….as you can see, based on these numbers, you'd spend more.

It’s stunning how often people fall into this trap every single day based off of blue-book-type retail numbers.

For an interesting discussion on car values, check out the article on bluebook pricing @ http://www.repairtrust.com/articles_kelley.html. It's eye-opening!

The facts are, however, we as a retail dealer are not likely to get $22,800 for the Volvo even though the book says it's reasonable. Book values, or the values placed on vehicles by websites are guides based heavily on opinions and averages. Go to seven different websites and you'll get seven different values.

If you’d like, I can get you any used car you want at a great value like the Volvo…but I'd still only be able to pay $4,000 for the Impala.

Since we don't use manipulative "feel good" numbers to inflate the trade-in value by increasing the sale price of the Volvo, it appears as if we're offering too little for the Impala.

In actuality, the numbers are dead on. $4000 is a real number!

Note...none of this is a sales pitch, but the straight deal on the "value" of the Impala in the real world. This is not to say that you couldn't sell it for $7,000, provided you want to do the footwork—advertising, replace the bald tires, service and recondition it, fix the rear seat...etc.

In short, what makes up the value of a car is incredibly complex and variable.

What I wouldn't want you to think is that you're being low-balled on the trade-in price. What is happening, and it’s the only way we’ll do business, is that you are being given a "real value" and a "fair value" for your Impala.

The short answer to all this is that you're getting a square deal on both ends—even though it may not “feel” like it with the Impala.

[Rich]

Hi Ted, if I had to finance approximately $14,000 for the Volvo, my monthly payment would be around $430/month (3 years @ 7%). I think that I may be more inclined to lease a 2007 loaded Infiniti, which would probably cost me less on a monthly basis.

[Ted]

Hi Rich…

Leasing has many positives; however, at the end of 3 years the value of the Infiniti to you would be $0. The residual value of the 2006 Volvo S40 is $9625.

One of the major downsides of leasing is that at the end of the lease…you have NO equity.

I will not in anyway be offended if you choose to lease, or buy somewhere else. What I know, and what I can do for you is get you a great "value" for your dollar.

$18,995 for a vehicle that is priced $4805 under the low value of $23,800 is a great value.

$4,000 for an Impala that needs $1,000 or more in reconditioning is a real price.

In short, you can't buy wholesale and expect to trade in for retail.

Interestingly, the current wholesale price of the Volvo is $19,000 to $20,000. In other words, I couldn’t even buy this car right now for $18,995.

Those are my thoughts.

I hope this helps in your decision making process.

[End Email]

As you can tell from this conversation, the perception and the reality of used car prices is very different. This article illustrates that pricing used cars must be done in context. An arbitrary number set by a website or book distorts the real-life values for the car buyer and the seller. These "values" make everyone distrustful, uneasy, and confused. The auto industry doesn't need any more of this!

-Ted Olson
Medway Imports...
Making sense of Used Car Prices