Buying a new vehicle is always an exciting time. The thought of driving down the road, enjoying your new vehicle is sure to get the pulse racing. Your friends and neighbours compliment you on your new vehicle and you feel proud pulling into your driveway for the first time.
There is, however, one obstacle left to finalize the deal on your new vehicle: What to do with your old vehicle? You have three choices: keep the vehicle and hand it down to a member of your family, sell your old vehicle yourself or trade it in on your new vehicle.
Decide What’s Best For You
After many years of driving, many people regard their vehicle as an old friend. It has stood by them over the years and has delivered thousands of miles of happy motoring; some even consider it to be part of the family. For these reasons you want to see it go someone who will appreciate it and you want to get the very best price for it.
If you have decided to part with your current car you really have two options: sell it yourself and try to get the most cash for it as possible or trade it in on the new vehicle, eliminating all the hassle involved with selling it yourself.
If you are the type of person who enjoys selling your car and you are in no urgent need for the money from the sale of the vehicle, then obviously selling it yourself is your best option. On the other hand, if you dislike the sales process and find it a tiresome chore, then trading in your vehicle is your best option.
For the most part, the majority of people fall somewhere in between these two options. No matter your choice, it makes good financial sense to weigh both options before you make your decision.
Establish What It’s Worth
To make an educated decision on which route to take, you need to have a good idea of what your car is worth. This is probably the most difficult part of any transaction; after all it is your vehicle we are talking about. No matter how difficult, try to keep emotion out of your decision-making process; it will save you money in the long run.
Start by doing some research. A vehicle has three values: its wholesale value, its retail- asking price and its retail-selling price.
Wholesale Value
Wholesale value is the true value of your vehicle. This is the price that your car would bring if it was sent to auction and sold as it is today. In an auction the car will fetch the most anyone in the industry is prepared to pay for it AS IT STANDS TODAY.
This is not the Black Book value; the Black Book is only intended as a guide for the industry; some vehicles will be worth what Black Book recommends, sometimes even more than Black Book. Be careful in placing too much stock in Black Book values. Your car may be worth more or less than Black Book depending on how it is interpreted.
A good example of this is if a car is exceptionally well maintained and is in near new condition but it has been used for highway commuting and accumulates 125,000 km. on its odometer after only three years of driving.
No matter how well looked after the vehicle is and how desirable it is, the car will not get “clean” book price. The reason for this is that average motoring is considered to be 24,000 km. per year; thus this car has five years’ worth of driving on a three-year-old car.
Likewise a ten-year-old car with 240,000 km., is average mileage for its age.
It is not easy trying to figure out your vehicle’s wholesale value but a good place to start is on the Internet. Some of the manufacturers web sites have a Black Book valuator where that you can value your own vehicle.
Retail Asking Price
Retail asking price is the price for which you will often see vehicles similar to yours advertised. Don’t fall into the trap, thinking that this is what your vehicle is worth. It may well be worth that, but generally speaking this is the full asking retail price for this type of vehicle. Often dealers will have added value to the vehicle by offering things such as inspections, warranties and servicing. Private advertisers will often sell for less but this does stand as a good starting point for what you can ask for your vehicle if you decide to sell it privately.
Retail Selling Price
Retail selling price is the actual price you would expect your vehicle to fetch if you sold it privately. It is more than the wholesale value but generally less than the asking price. The retail selling price will be determined by how good a job you do preparing your vehicle for sale, both mechanically and cosmetically. If your vehicle shows well you will get more money for it.
Decision Time
Armed with all these figures and an idea of what a dealer will be prepared to offer you for your vehicle as a trade in, it is time to make a decision. Do you trade in or sell the vehicle yourself?
Your final step before making that decision it to do a cost/profit analysis similar to what a dealer would do with your vehicle. Start by adding up all the costs involved in preparing your vehicle for sale:
1. Advertising – Where will you be advertising the vehicle and what will be the costs involved? It is always better to advertise in a number of different publications to ensure that you reach as large a market as possible.
2. Mechanical Preparation – What will it cost to ensure that your vehicle is in good mechanical condition? Most people will want to get a mechanical inspection done, (in some jurisdictions it is mandatory) if you have not had one done already.
Should there be any faults found with your vehicle, prospective buyers will likely want it fixed or expect a reduction in price.
3. Cosmetic Preparation – What will the costs be to get, and keep your vehicle in saleable condition? The owner can often do this, but if it is to be done by a valet service, count on having the vehicle cleaned a few times, as most vehicles take several weeks to sell.
4. Financing Costs – This is the cost of carrying the vehicle until it sells. A good way of establishing this cost is this: if you borrowed $10,000 for a vehicle over three years, the monthly cost would be approximately $300. Therefore if you have $10,000 worth of equity in your current vehicle, it is costing you $300 per month not to apply those funds to the new car loan.
An example of how you would apply these costs:
You have a pickup truck that you are thinking about trading in on a newer vehicle. You have seen similar vehicles to yours advertised on a dealer’s lot for $23,500. Bearing in mind that a dealer is in business and will make a profit off your vehicle, you are offered $20,000 for your trade. You are fairly certain that you can sell your truck for closer to $23,000 privately.
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Sale Price
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$23,000
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Advertising Costs
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$200
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New Windshield
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$350
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Oil Change & Service
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$200
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Carrying Costs 1 Month
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$600
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Valet Service
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$200
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TOTAL
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$21,450
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One final thing to consider - if you trade in the vehicle you will only pay GST on the difference between what your trade is worth and the new vehicle’s cost. This will effectively save you an additional $1400 in GST. When this is factored into this example, it is not worthwhile selling this vehicle privately - for all the effort the seller will only realize a $50 profit.
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