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value of car

Usually, this is everybody’s biggest fear when it comes to purchasing a new vehicle. Does the value of my trade-in come from a magical unicorn in the clouds on a sunny day? What is ‘book price’ and where do they get these numbers from? Where do I find out the real value?

What is depreciation?

Unfortunately, cars are depreciating assets, because we use them. They don’t get any newer (although that would be nice!). This means as soon you drive, the value of your vehicle drops. Mileage, as well as wear and tear, are all incurred in the life of owning a vehicle (Unless you have an extremely rare vehicle that you keep tucked under a fluffy blanket in a heated garage somewhere). Each vehicle has different rates of depreciation depending on factors such as fuel prices, the market, manufacturer publicity, supply and demand, and perhaps the area you live in. The average vehicle depreciates 15-20% in the first year. According to CARFAX over 6 years, “the average vehicle loses 60% of its total value”.

What is ‘book price’?

Back in the day, the dealership would subscribe to a book (sent every month) that had an estimate of the value of a vehicle. In this book, the dealer would look up the make and model, check depreciation, then go to a chart at the back to determine how much to add or subtract for mileage difference. For example, a Toyota Corolla S might say it was worth $10,000 but it had 30k miles more than it should for its year (based on average miles) so that would have meant, for example, subtract $1000. This takes the estimated value to $9000 based on the vehicle being otherwise absolutely perfect.

What if the trade is not in perfect condition?

The dealer would then have to take into account to the amount of prep or repair work needed to get that vehicle back up to nearly perfect (also know as clean), subtracting that amount from said value. For example, say the car had 4 bald tires and a deep scratch, this could potentially mean another $1100 subtracted from the value, making the car worth around $7900. On top of that is then sales preparation costs, such as mechanical inspections and detailing, further lowering the price.

Guides

Today, there are several ‘books’ available which everyone has access to. There is Kelley Blue Book (KBB), NADA Guide and the Black Book. Prices can vary wildly between books, so where do they get these numbers from? The reality is, any tangible object in this world is only worth what someone is willing to pay for it. Kelley Blue Book get’s their data from wholesale auctions, dealers, financial institutions, and private party transactions. This allows them to see what people are paying/selling the vehicles for.  This data is then used to update their estimated vehicle car values weekly.

NADA (National Automotive Dealers Association) gets their data from wholesale transactions, retail transactions, AutoTrader, manufacturers, and retailers. “We also take into consideration MSRP, invoice, equipment assumptions, as well as supply and demand and other macro- and micro-economic factors and the competitive landscape of vehicles”.

Why ‘the book’ can be wrong for a trade-in.

Although these companies can collect data, none of them are actually in the business of buying and selling vehicles. You will also notice that if you go onto any of their websites, you will notice advertising and some of them may even have you enter personal information. The information given on pricing and values is a GUIDE, not a definitive value or answer.

There will be exceptions to the guide for trades. For example, a RWD sports car is going to be worth less than guide value if you are trying to sell somewhere that has snow almost all year round. It is going to be harder to sell. Another example might be a nearly new truck with high miles. Just as an example, if you put in a 2015 Ford F-250 Super Duty V-8 gas engine with 350,000 miles. The ‘book value’ comes out at $18,615. Would you pay nearly $19K for a vehicle that has 350k miles? Probably not.

Dealers will glance at the books as a guide and only a guide for trades. They not only take into consideration; the make, model, year, mileage and the amount of prep work, inspections, and repairs needed to bring the vehicle up to a clean status, but also what is going on around locally. What is selling, what is getting traded in, what sells fast , what doesn’t, is there a lot of them or are they rare, is it a bad model year for problems, salvage title, accident reports etc so there is a lot more goes into determining your trade value than you might think. It’s not a number delivered by a magical unicorn from the clouds on a sunny day.

To get the best possible price for your trade, the car/truck should be in pristine condition. No dents dings, good tire tread, and all maintenance done. If you feel that you been offered an unfair trade value, you can always try selling your vehicle privately for the amount you think is fair or you can try the Kelley Blue Book Instant Cash Offer.

Pay-off is not the same as value.

When you finance a vehicle, you are paying interest on the loan amount. This means you are paying more on a depreciating asset and can end up being ‘upsides down’. This means you owe more than the vehicle is actually worth. Some ways to avoid this is to maintain good credit ( to keep rates low), make higher payments than required, finance over a shorter term or make a large down payment when initially buying.

 

“Automotive Tools Tips Advice – Kelley Blue Book.” Kbb.com. Kelley Blue Book, n.d. Web. 11 May 2017.

Lauren has been working in the automotive industry both in the U.K and in the U.S. for over 10 years. A car geek, photographer, big game chaser and bagpipe player, powered by coffee. Send your questions to:

lauren@trustedautopros.com

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