The Negative Equity Car Dealer
Car dealers routinely make far more profit
on the “iron” when
they sell a used vehicle instead of a new one. The reason
is simple. New motor vehicles have a factory window sticker
on them that tells you, in a pretty honest way, what the
manufacturer suggested retail price is.
There is no “suggested retail price” for
a used vehicle. It is whatever the dealer can get away with.
As a result, they sometimes try to get away with a lot — a
lot of your money.
way is by claiming you’ve got vehicle negative equity
in your trade in vehicle. This is one way to boost extra
profit out of the deal without you realizing it’s happening
Watch out when a car dealer says that you have “negative
equity” or negative trade-in value. Half the time it
probably isn’t true at all. The other half of the time,
it probably is not as bad as they want to make you think
it is. Either way, what may really be happening with “negative
equity” is that the car dealer is trying to make extra
Negative trade-in value simply means that your
trade-in vehicle has a fair market value that is less than
what you owe on it. This could be because you have not owned
it very long, and you still owe a very high payoff on it.
It could also be because the last dealership where you traded
a car in, and who sold you this one, started you on this
cycle of vehicle “negative equity.”
You need to know, for certain, what your trade-in
vehicle is really worth. You can look it up in books you
can buy at the bookstore or find at the local library, or
you can even ask a local bank to give you the value numbers.
Those numbers come from several different publications. There
is what some people call the
(which is really yellow) published by the National Automobile
Association. Most libraries have this and many bookstores
sell this. Car dealers get it monthly and it lists the base
price of the vehicle for trade-in, wholesale and retail purposes,
along with options that are worth anything and deductions
for high mileage, among other things. These numbers are probably “conservative” but
perhaps more realistic than the other books that are available.
Different areas of the country find one book
more popular to use than the other, but virtually everyone
uses the NADA
However, if you want to know what your vehicle
is really worth, forget about all of those books. Instead,
look in your local newspaper or “trading post” or
car magazine. The odds are that the most realistic and accurate
numbers are going to be found there. Before going to trade
your car in, you should check all of this out and you might
want to call your local credit union or bank too. Don’t
forget to add something if your vehicle has low mileage or
is in extremely good condition.
In any event, just remember: “negative
means only one thing to a car dealer — Positive Profit!
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