The car market today is bonkers. Used car inventory levels at dealerships are low, and prices are way up – including trade-in values. Because of the demand for used cars, this may be an advantageous time to trade in your car for something new. Dealerships may try to capitalize on what you’re seeing in the headlines (and here on my blog) but watch out for these tricks.
“We Need Your Car!” Trade-In Letters
You’ve probably received a letter in the mail from a local dealership about how desperate they are for inventory. Maybe they’ll say that they have customers who want your specific make and model, and as a result, they’ll pay you some amount above and beyond normal trade-in values. These days, you might see one of these letters and assume it’s a function of the current car market. But dealerships have been sending out these types of letters for years. And there’s some serious fine print that you don’t want to miss.
For example: Linda the Legacy
I have a 2014 Subaru Legacy with around 121,000 miles on it. According to Kelley Blue Book, the trade-in value of my car is currently between $6,414 and $8,129.
A few weeks ago, I received a letter from a local Subaru dealership offering me $13,883 for my car. After all, they need my Legacy! They’ll pay top dollar! Sounds like an amazing deal!
But there’s fine print on the back. It says that the amount of the offer can be adjusted for mileage and condition. For mileage over 10,000 per year, the offer is reduced at a rate of 20 cents per mile. Therefore, they’ll subtract $8,200 from the $13,883 offer. The trade-in value of my car becomes $5,683 once I account for mileage.
And that’s before the dealer assesses my car’s condition. Mechanically, it’s in excellent shape. But like nearly all cars, there are a few door dings and scratches. Probably enough to justify further reducing my offer.
If I wandered into that dealership to buy a new car, I bet I could push them up to at least $6,400 to be more in line with Kelley Blue Book values. But they will not be buying my eight year old Subaru for almost $14,000. The fine print on the back of these letters gives the dealership the ability to reduce that inflated offered price back down to your car’s market value.
Is this a scam?
Maybe my car is a poor example. But are there people out there who might be able to cash in on this type of offer? Theoretically, yes. If you have a car with super low mileage for its age that’s still in showroom condition, you might be able to use one of these offers to get an exceptional trade-in value for it. But I’d be shocked if the dealership wouldn’t happen to find just enough flaws or defects in any potential trade-in to justify reducing its value much closer to current market values.
Don’t let these letters fool you. Dealerships might be desperate for used inventory right now, but they’re going to do everything in their power to avoid paying nearly 50% above market trade-in value for it. This dealership might legitimately want my Subaru, but above all else, they just want to get me in the door so they can try to sell me a new car.
Trade-In Values Based on Original MSRP
Along the same lines, I once saw an ad on Facebook that a local dealership was offering trade-in values based on the car’s original sticker price when it was new. Back in 2014, Linda the Legacy probably cost at least $25,000. So, around $18,000 more than my car’s current market value!? Sounds too good to be true!
And it was indeed. Upon inquiry, this dealership would use my car’s original sticker price to determine the trade-in value – as a starting point. But that number would be reduced by a set amount for each year that has passed since it was new. It would be further reduced at a certain rate to account for mileage. After doing some quick math, it wasn’t long until that $25,000 figure plummeted well below current market trade-in values.
This is another trick designed to get you into the showroom. But once you’re there, don’t expect any dealership to truly give you this kind of money for your trade. If you see a trade-in promotion that sounds too good to be true, it is.
More Than 100% of Blue Book Trade-In Value
If you spend as much time on car dealer websites as I do, you’ll occasionally see some dealerships who claim to always pay some percentage over market value for trade-ins. But just like the examples I’ve already shared, this is usually nonsense.
A while back, I was helping clients who had a car they intended to trade in. I don’t recall the exact numbers here, but based on Kelley Blue Book values and appraisal offers we had already obtained, we were looking to get around $10,000 for their old car. One of the dealerships we worked with promised to pay 125% of current market trade-in values. When they appraised their car, the dealership presented a value right around that $10,000 mark – just like other dealerships, and what market values supported.
When I asked about their 125% promise, wouldn’t you know – that $10,000 figure was already 125% of the assessed value! They claimed that they appraised the car for $8,000, so 125% of that amount was $10,000. Right…
At the end of the day, car dealerships are a for-profit enterprise. They plan to turn a profit on the sale of your car, whether it’s sold on their lot or at a wholesale auction. And thus, paying you more than the car’s market value doesn’t make business sense. Once you know what a realistic trade-in value looks like for your car, if a dealership claims they’ll give you more than that amount, beware. It’s probably a trick.
Thanks for reading! If it’s time for a new car, but you aren’t sure where to begin, I offer services to help. Please reach out!