Selling Used Cars Just Ain't What It Used to Be

Dropping car prices, especially for used cars, may require some different tactics come trade-in time.

The traditional advice from automotive consumer experts was that you could pocket several hundred extra dollars by selling a car yourself instead of trading it in.

The advice was simple: "Eliminate the middleman," says James Bragg, author of "The Car Buyers' and Leaser's Negotiating Bible."

But that advice may be changing.

A variety of changing market dynamics mean a softer market for privately sold cars. And although prices at used-car lots are falling as well, they're not falling as fast. Actual sale prices between individuals are little higher than wholesale, if at all. Advertising expenses can easily consume any difference, and more.

When you add all the costs of selling your own car, you may do better selling it to a dealer at wholesale, especially if you own an older car whose warranty has expired.

"I think the days of selling a car yourself are numbered," says Jim Horton, general manager of State Line Auto Auction in Waverly, N.Y.

Mr. Bragg, the car buyers' advocate, says car owners will sell their cars themselves as long as it they get more money doing it. But he says many don't want the hassle.

Why are car prices dropping so fast? Mainly leasing.

The most popular leases on new cars run just two or three years, which means fleets of "young" used cars flood car lots for resale - complete with warranties and at least the appearance of extra reliability because they have been inspected by the dealer and "certified" by the manufacturer.

Huge used-car inventories

With more than 3 million such cars coming back on the market each year, the supply of good-quality used vehicles is outstripping demand.

"There are so many vehicles coming off lease, it adds up to huge inventories of used cars on the market," says Tom Webb, chief economist at the National Automobile Dealers Association (NADA) in McLean, Va. "Everyone will tell you that as a percentage of the original price, [used car prices] are dropping."

To prop up prices, many manufacturers add new warranties and financing. They also press dealers to sell them alongside new cars.

Many of these cars can be leased again. Jaguar dealers even offer third-time leases on some vehicles.

But even with the "certified" stamp and other marketing devices, the trend in prices is still down. The flood of supply is drowning even strong demand.

As Americans gain more wealth, they gain a greater appetite for the latest product of any type, says Bill Feldenheim, a used-car buyer for the national auto-superstore chain AutoNation. Used cars, no matter how shiny and durable, don't measure up, so their values suffer.

And right now, even new-car prices are falling, because of excess supply and prices that were already out of reach of many consumers. (See story, below.)

Automakers guarantee the future trade-in value of leased cars, so they lose big money if cars depreciate too fast. "When values drop, the big losers are the leasing companies even more than consumers," says Mr. Webb.

Used-car prices are falling so fast that pricing publications such as Kelley Blue Book and Edmund's, generally updated quarterly, can't keep up, says Mr. Horton.

The biggest used-car glut floods the Northeast, he says. And most auto pricing books have only one nationwide edition, so they don't reflect the lower prices there.

Edmund's publisher Lev Stark says the company is addressing the timeliness issue by listing prices on its Web site (www.edmunds.com). But those prices are updated quarterly as well, he says, and consumers have to make their own adjustments for regional price variations.

What does all this mean for you and your jalopy?

It may mean that when it's time for a replacement you're better off trading it in than trying to sell it yourself.

At the same time, dealers' profit margins on used cars are shrinking, says Webb. From a high in 1994 and 1995 of $290 per vehicle, profits have dropped to $175 a vehicle in 1997.

And if dealers earn less for their time spent polishing and marketing used cars, you probably will too.

The dealer's edge

Dealers enjoy a distinct advantage with buyers in their ability to provide financing. With the average 1995 used car selling for $15,500, most people can't pay cash for them.

"Once used-car prices get over $10,000, it's hard to sell them," Horton says.

Trading in your car also eliminates the hassle of waiting by the phone, making appointments with strangers, and the liability risk in case anything goes wrong.

Other old advice holds, however: If you trade the car in at a dealership where you buy a new one, negotiate the trade-in separately from the price of the new car. (To learn how to get the most from trading in your old car, see story above.)

Getting the Most

For Your Trade-In

* Negotiate its selling price separately from the purchase price of your new vehicle.

* Look up its value in Edmund's guidebooks or on the Edmund's Web site at www.edmunds.com They are the most consumer-oriented price books.

If you can't find your car there, try NADA guides or the Kelley Blue Book Web site at www.kbb.com

* Try to trade your car to a dealer who can resell it, not one who will ship it to an auction house. Most likely that means a new-car dealer who sells the same make or a used-car dealer with an inventory that fits your car.

* Wash and vacuum the car, or have it professionally cleaned and detailed.

* Just as with buying, shop around for the best price. Make an appointment with the used-car managers at three dealerships, the one where you plan to buy your new car, a new-car dealer of the same brand, and a used-car dealer with a good reputation. Go for the highest offer. If it's not the new-car dealer, you actually have a stronger hand in cutting a new car deal, since you'll be bringing more cash to the deal.

- E.C.E.

* Comment to: evarts@csmonitor.com