This week I am going to get myself in trouble again
by giving you a "GENERAL" over view of trading in a vehicle. First
I would like to remind you that business's MUST make money car
businesses are no different than any other business. A grocery
store buys food items, puts a mark-up on the price and then sells
the items to make money in order to stay in business. When you
trade your vehicle in on another vehicle, you are really SELLING
your vehicle to the dealer. The dealer MUST buy your vehicle at
a cheap enough price that they can sell it AND MAKE A PROFIT.
Every vehicle sold has a trade in value built into the price,
to allow for a trade. I will give a GENERAL view for example purposes
ONLY. (Do not use these percentages as a rule because they are
only used to simplify the explanation.) Lets say that a dealer
has a car that they paid $10,000 for and they need to make a 25%
"MARK UP" to be able to stay in business. This would now become
a $12,500 price tag.
However, they know that the majority of people prefer to trade
in their old vehicle and they also know that the major reason
people trade off a vehicle is because it requires some repairs
that the owner does not wish to deal with. In other words, the
dealer knows that they are going to have to spend some money
on the vehicle that is being traded in. So in order to have
some room to work, they put a trade in allowance on the above
vehicle of 20% and the asking price now becomes $15,000. Now,
in you come with your vehicle to trade off and we are going
to look at how a DEAL is made. You are driving a vehicle that
would NORMALLY sell for $5000 but for the dealer to be able
to sell your car for $5000 and MAKE a profit, they must BUY
it from you for less than that amount, RIGHT?
In a PERFECT situation, they just take the trade in allowance
off the price of the above vehicle, (The $2,500.) and they add
it to your BASIC value of your vehicle and they tell you that
they need $10,000 difference. (They are really only giving you
$2,500 for your trade.) This looks like a good deal because
they are showing your trade in as being $5000 and you are happy.
However, this is NOT a good deal for the dealer and this situation
would NOT buy you the car. Remember I said that the dealer had
to make a 25% MARK UP? I know what you are thinking, the dealer
took your car on trade for $2,500 and you paid $10,000 difference
so the dealers profit is in what they will make when they sell
your car. However, this DID NOT make them any money on the car
they just sold as their profit is tied up in a car that might
sit on their lot for months before it is sold. Plus they might
have to do a complete clean-up, ($300) a brake job, ($400) new
struts, ($300) four new tires, ($400) and they have to pay a
lot person to wash that vehicle every week until it is sold.
Buy the time they sell your old car, they will have spent more
than $2000 on that car, so it has COST them $4,500 and in order
to make that 25% MARK UP, they would have to sell your car for
$5,625. (Not a chance.) So in order to get a deal here, you
would have to be willing to accept about $4000 for your car
on trade and paid $11,000 difference. Now is where we get to
the neat part.
You could of bought the above vehicle out-right for $12,500
and kept your old car to sell yourself. If you could sell your
old car for anything more than $1,500 dollars, you would be
further ahead RIGHT? The bottom line is, can you afford the
time and money to deal with selling your old car? That is why
most people just prefer to trade them in as it is more convenient.
If you choose to trade in, just remember that you must allow
the dealer the ability to make his required profit or it will
be NO DEAL.
Next week, tips to increase your trade in value.
