"What will you give me for my trade-in?" asks the hopeful new car buyer

It's a scenario played out every weekend, all over Australia, in hundreds of dealer showrooms. "What will you give me for my trade-in?" asks the hopeful new car buyer, whose old car has suddenly, for obvious reasons, become a very desirable and valuable commodity.

"I´ll check," says the salesperson, after giving it the quick once over. The tension is palpable. Waiting for a valuation is worse than sitting in a dentist's reception room.

The price a dealer puts on your trade-in, and the higher price someone else then pays for it as a used car, is influenced by many factors. Trade-in and used car values are monitored by two research companies, the Sydney based Redbook and Glass's in Melbourne.

Their publications are widely used by dealers to establish prices and margins. If you're trading in or buying used, Redbook and Glass's have already established the general rules of the deal. Both have been in the business for 50 years. Redbook gets its information from wholesale and retail auctions, its own manufacturer and dealer panels and field research. Glass's operates in a similar manner.

Max Perry, a director of Redbook, says there is a strong correlation between a new model's popularity, and consequent premium pricing, and its value as a trade-in. "If a new car sells well, it usually attracts good resale values," he said. "On the other hand, if a new model struggles, and is then discounted, you get a double whammy adverse effect on its trade-in value."

In the current new car market, manufacturers are releasing new models with major improvements and equipment upgrades but little increase in retail prices. This also puts downward pressure on the value of the superseded model, because dealers find it difficult to sell as a used car unless there is a substantial price difference.

Perry believes that the sales performance of individual new models is more important than overall perceptions based on country of origin or brand in determining resale values. "Holden´s Astra is an example," he said. "The current car has been very successful and has strong retained values. The previous model (pre-1988) didn´t sell well, and performed poorly."

Ford's popular BA Falcon currently sits at the top of the retained value tables in its class; its predecessor, the unloved AU series, attracted a much lower percentage of its new price as a trade-in.  "The market is smart enough to make these distinctions," said Max Perry.  

Accessories depreciate much harder and faster than the car itself

If you tick all the options boxes on your new car, you'll be in for a shock at trade-in time. "Accessories depreciate much harder and faster than the car itself," Perry said.

"Big ticket items, such as leather and some 4WD accessories such as towbars, can make a difference. Bonnet protectors and headlight covers might help the dealer add profit on a new car, but this doesn't come back to the buyer in resale values. As a car gets older, accessories become less relevant to its value," he said.

The buoyant new car market is presently causing some pain to owners offering their cars as trade-ins. "People are getting more bang for their buck on a new car, which is also relatively affordable due to cheap finance," he said.

Ross McKenzie, executive director of sales and marketing at Holden, agrees. "The used car market, and resale values, are determined by simple supply and demand economics," he said. "If supply exceeds demand - which is happening at present - prices and values come down."

"In the United States, the availability of zero per cent financing on new cars has seen a dramatic downward shift in used car values," he said. "If a dealer is holding a large used car inventory, he won't trade as aggressively. He thinks "Here's another used car I don't need."

"We don't offer factory cash discounts on our new cars," says McKenzie. "We add extra equipment, a form of discounting which has less effect on resale values. As soon as a factory cash discount is published, it goes straight through to resale values."

However as a class, Commodore, Falcon, Camry and Magna don't perform well in the resale stakes. This is largely because most are sold to fleets at substantial discounts, reflected in low wholesale and retail prices when the fleets offload them. Private buyers, who pay closer to full retail, are caught up in this cycle.

Whatever the state of the market, Max Perry says the condition of your trade-in is "critical" when it comes to your bargaining power in a new car deal. "Dealers are always looking for good, clean, low kilometre cars," he said.

"Especially those with less than 90,000 km on the clock. Plenty of wear left in the tyres, and time until the registration expires, are also attractive because the dealer doesn't have to spend money." 

You can get a  car valuation online here.  

Article by Bill McKinnon, 2004