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Dutchess_III's avatar

How do car trade-ins work?

Asked by Dutchess_III (43521points) July 5th, 2017

I don’t understand how it works. It seems like it should be cut and dried. You owe $1000 on the old car, which is worth $5000. Seems like they should take $1000 off the asking price of the new car (and still make a profit) then turn around and sell your old car for $5000. Profit, profit for them. It doesn’t work that way though.
Do trade ins benefit the customer at all, or just the car dealership?

Thanks guys

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12 Answers

Tropical_Willie's avatar

Trade-ins are one way, advantage to the dealer. The trade value is not the retail resell value, trade-ins can be 60% to 75% of full retail. Remember Business 101, “Buy low then sell high!”

So the car is worth is $3000 minus the $1000 not $5000 minus $1000.
That is $2000 for the dealer to fix, repair, cover warranty expenses (returns for quality issues) and finally profit.

Dutchess_III's avatar

If they can sell it for $5,000 why would it not be $5,000 – $1,000 – repairs? Where do you get $3,000?

Dutchess_III's avatar

OIC. You’re assuming $2,000 for repairs. Now the numbers match. That’ comes up to 2000 profit if resold at $5,000. Still not bad.

zenvelo's avatar

Where did you get “worth $5,000”? There is no single resale price for a car; there are educated ted estimates, such as the Kelly Blue Book. But the blue book has different valuations, depending on whether you are calculating a trade in price, a private sale, or the price you pay from a dealer.

And the amount owed on a loan is the responsibility of the car owner, not the dealer accepting a trade in.

Dutchess_III's avatar

It was just a number to do the math with.

Call_Me_Jay's avatar

If they can sell it for $5,000 why would it not be $5,000 – $1,000 – repairs?

If they can sell the car for $5,000, they are not going to buy it for $5,000. They have to make a profit. The wholesale price they offer you is independent of the old loan. And if it needs $1,000 in repairs, it’s a $4,000 car, not $5K.

But car dealers like to merge everything into one package to bamboozle you – new car, old car, old loan, new loan. Those are four separate things you can negotiate.

To be fair, lots of people are happy to be presented a simple offer – How much down payment and how much monthly payment? – “OK, gimme the keys, kthxbye!”

But you are paying for significantly for letting them handle it all as if it’s one thing.

ARE_you_kidding_me's avatar

It’s usually best to not trade your car in but sell it seperately. Whenever you trade a car in you can just about guarantee you lost at least 2k or more.

Dutchess_III's avatar

No. I didn’t say the would buy it for $5000. I said they would buy it for the $1,000 that is left to pay on it so that you will buy their car. That means they should take $1,000 off the asking price of the new car. I know that they will still make a profit for selling it for $1,000 less.
So, in the end they make a profit on the new car, and on the car they took in as trade it, even after spending $1,000 to buy it and $2,000 in repairs. They get $2,000 profit on the new car + the profit on the old car.

And I know I’m bamboozled. I figured that out on the last car we had that Rick said we should use as a trade in. Looking at the numbers something was screwed, so that’s why I’m trying to figure it out.

@ARE_you_kidding_me I agree you shouldn’t trade your car in.

zenvelo's avatar

…they should take $1,000 off the asking price of the new car.

But then they are losing the profit on the new car! Many times, that is their margin! And, it isn’t how they work.

They are giving you $2,000 off the sales price of the new car. You get to pay the loan yourself.

Pinguidchance's avatar

Do not, under any circumstances, enter a car yard on your own.

Response moderated (Spam)
zenvelo's avatar

^^^^Flagged 5:01 a.m. PDT 7/13

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