You've decided it's time to replace your vehicle, and you've narrowed down your choices.
Unless you're getting your first car or adding a second vehicle to the family, you'll most likely be trading in your current ride and using the money to partly fund the purchase of the new vehicle.
So how can you figure out when your trade in value quoted is good enough?
Let's start with the fundamentals.
What is a car's "trade-in value"?
The trade-in value is the amount a dealer will give you towards the purchase of a new vehicle in return for your old one. It's usually based on the car's current market value (the amount it would sell for on the open market).
The value of your trade-in car will vary based on a variety of factors, including the popularity of the manufacturer and model, how many similar cars that particular dealer currently has on their lot, and the age and condition of your car when you bring it in. Market data suggests that dealers will often pay thousands of dollars less than you would earn if you sold your car privately.
What factors influence a car's trade-in value?
Dealerships acquire cars at a wholesale price and resell them at a retail price. The fundamental principle is to purchase low and sell high.
So, whether you realise it or not, when you trade in your car to the dealer, you are essentially selling it at a wholesale price, because it makes no sense for a dealer to pay more for your car than an identical car at a wholesale auction.
Dealers understand that you need to sell your car and they enjoy negotiating, so you should expect their initial offer to be 10% to 30% lower than what they are truly prepared to pay for it.
Finally, you must decide which is more essential to you: time or money. If you sell your car privately, you can probably get a couple of thousand dollars more, but it will cost time, work, and resources. If you don't want to invest the effort selling your vehicle personally, you will only get a wholesale offer for your vehicle.
Sales when new
There has been relatively little change in the make-up of the five most popular car brands sold in Australia in the last 10 years. These carmakers - and their most popular vehicles - tend to have higher-than-average resale values – that is, a higher sale price relative to their initial cost.
This is attributable to a number of factors. To begin with, if a vehicle is popular when it is new, it is typically a time tested commodity for used car buyers, allowing it to be bought at a higher price. Second, when there are many examples of a specific vehicle on the road, insurers can drop premiums, making it cheaper to take out a comprehensive insurance policy and easier to borrow against.
Style and shape of the body
When a valuer examines a car, whether as a trade-in or on a wholesale yard, they must determine if the vehicle can be turned around and sold quickly. They will have an approximate amount in mind when evaluating a vehicle based on market values of similar cars before taking a deeper look at the overall condition to produce a more exact trade-in price.
After a few years on the market, a carmakers may "refresh" a vehicle's design to improve the style, add new technology and safety features, and help maintain sales up with competition. When a car gets "facelifted" you will typically see a severe reduction in prices for older models with the previous style.
Accessories and options
When buying a car, more options may rapidly add extra zeroes to the end of your invoice total, but it can be a shock when that doesn't transfer into the same enhanced value when it comes time to trade in.
Modern cars all have similar features, with the most notable variations being extra safety measures or technological updates. Even entry-level vehicles now come with convenience amenities that were previously only available on top-of-the-line cars – making it more difficult to convert into a notable increase in trade-in value when compared to the glut of used cars on the market.
Accessories are also unlikely to add much to your car's resale value, especially if they are for a purpose that a buyer may not need. A bull bar, for example, may appeal to some purchasers, but anything very specialised, such as drawers and shelves in the rear of a canopied truck that eat up cargo room, may be a turnoff for many used vehicle buyers.
How do you apply it?
Any used car buyer's guide will urge you to check the service history as well as tell-tale symptoms of how the vehicle has been used. Paint bubbles, as well as corrosion, might indicate inadequate accident repairs, and oil that isn't in good condition indicates that the bonnet hasn't been raised for a service in a long time.
However, even a car that appears to be in perfect condition on the outside might conceal a bad driving history. Cars that have previously been driven on a mining site or as part of a rental car company, for example, are less attractive at a wholesale vehicle auction due to the tougher environments they have to drive in. Similarly, if your car has more than normal mileage for its age or apparent wear and tear from usage, it will fetch lower trade-in prices – which is why it's critical to maintain your car looking as new as possible.
Reputation of the manufacturer
Even a low-cost new automobile costs at least $15,000, yet brand snobbery persists among drivers who have preconceived opinions about specific vehicles, clouding rational decision-making.
Korean automobiles, for example, were formerly considered disposable, and some consumers still believe this, despite the fact that brands like Kia have become just as dependable, safe, and fashionable as the 'mainstream' manufacturers that have been selling in Australia for longer.
Unfortunately, if you possess a car from a time when a brand's reputation was less than great, it will likely command a lesser trade-in value than typical. Even if your automobile has been as secure as a home, many used car purchasers will still accept the stereotypes, making it more difficult to sell your vehicle.
Costs of maintenance
The majority of the time, when cars become older, they become more expensive to maintain and service. This is due to a variety of factors, including an increasing shortage of components and the requirement for increasingly complex labour. This must be considered when purchasing a car, and when trading in a car, the valuer will frequently inspect any parts that appear to be in need of replacement (such as tyres, filters, etc.) and review a service schedule to determine if any significant service items are due.
You can increase your trade-in value by keeping your car well-maintained and serviced on a regular basis. A build-up of missed services means a major service will be required sooner rather than later, which can be a powerful negotiating tool for private buyers and a deterrent for valuers to make a high offer.