How does a car dealership calculate a potential trade-in offer?

Recent events like the pandemic and the war in Ukraine have had a significant impact on the automotive market. Shortages of key components have caused many manufacturers to cut production and pump out vehicles that cost more and often come with fewer features. With the constant increase in vehicle prices, it has become almost impossible to buy a great car at a reasonable price.

This is why many people turn to exchanges as a potential problem solver. Trading in your vehicle is a relatively safe option. However, exchanges often have significant downsides: many people aren’t aware of the fine print or how their dealers handle exchanges.

In this article, we’ll talk about how dealerships calculate trade-in offers, discuss the concept of ACV, and discuss how you can personally estimate the value of your car.

Calculation of trade-in value

If you decide to make a trade, there are several factors to consider. The market, mileage, general condition and popularity of the model affect the value of the vehicle in the eyes of the dealer. As prices fluctuate daily, determining the value of a single car becomes extremely difficult, so some research could only benefit you in the long run.

There are various resources for these specific purposes or sites where you can consult the price of vehicles similar to yours. These are invaluable, but only when talking about baseline estimates. Dealerships need an “expert touch” and won’t close the deal unless a single, credible appraiser estimates the price for your vehicle.

However, knowing the market value of your car becomes very useful when trying to negotiate. Although all of the criteria mentioned above are somewhat vague, there is one that is more concrete and used universally. This is called ACV or Actual Cash Value.

Actual Surrender Value (ACV)

The term ACV comes from the insurance industry and is loosely applied in the automotive sector. In short, it means “the total amount a person is willing to pay for the vehicle in the condition it is in at the time of sale”.

After you buy a car, it slowly loses its value when you start using it. Even if you drive about 50 miles, the vehicle will be worth less than the original purchase price. To make matters worse, the longer you use it, the more it depreciates.

Apple cider vinegar is affected by several factors, including:

  • Car model popularity
  • Age
  • Seasonal calendar
  • Normal wear
  • Mileage
  • Road accidents
  • Current market value of the vehicle
  • Reconditioning needed

Dealers actively use the VCA and will base their trades on it. Thus, it becomes essential to understand how much someone will pay for your car. But how to calculate it and not spend too much time on research?

Assessment tools

When estimating a sale price, you must always be precise. Car dealerships like to “hold a trade-in” or lowball trade-in value to their advantage. Let’s take a hypothetical example. Your used car is a popular model in relatively good condition with acceptable mileage.

The vehicle has no registered traffic accidents and has been carefully maintained. Its ACV may be around $20,000, and it would be fair to ask the dealership to pay that much. Fully aware of this, the dealership employees will attempt to lower your asking price to $18,500 or even less, as it benefits them. If you didn’t know the precise market value of your car, you could easily fall prey to this lack of information.

To completely avoid this problem, many turn to assessment tools. Generally, they are free and accurately estimate what a dealer will give you when trading in your vehicle. One tool differs from the other, and you should use those considered effective in your particular county or state.

These expert tools are easy to use and ask you to provide truthful but relatively basic information about your car: condition, age, mileage, registration number, etc. It will then automatically find similar vehicles and, thanks to specific algorithms, give you a more or less precise estimate.

Summary

The automotive industry is currently in a difficult position and prices have fluctuated dramatically in recent years. It has become difficult to assess or estimate the value of your car. When it comes to trade-ins, car dealerships will only accept your offer if a credible expert estimates the value of your car. It is also essential to research yourself because you need something to build your “argument front”.