I personally believe that the days of being able to trade in a car or truck and pass the responsibility for selling it along to a dealership are coming to an end - very quickly. Am I the only consumer in America who can see that, with the price of brand-new vehicles going down fast, the value of Pre-Owned vehicles HAS to go down as well? Many of us still believe that if we call or visit enough dealerships and play them off against each other, we can get the absolute lowest price on our new vehicle, and the highest value we were able to find on the internet for our trade-in (and we don't have to take anything off for high miles or poor condition either - it's a buyers market and we can demand any trade-in value we want.)

Logically, if the general public can buy a new 2008 Brand X Whosit for $18,000 after all the rebates and discounts (when MSRP is $25,000), why would anybody be willing to pay the $19,000 that you want for your 2006 Whosit with 30,000 miles on it? Why would anybody even pay $17,000 for it - or $16,000 - when they can get a brand-new one with zero miles and full warranty for just a little more? No one is willing to pay full price for Pre-Owned cars anymore than they are willing to pay $25,000 for the new Whosit. If they can get a $7,000 discount on the 2008 Whoosit, they figure they should get at least that much off on a Pre-Owned one. That's why people buy Pre-Owned: to save money.

I have literally had people show me the MSRP sticker for a three- or four- year old truck with 50,000 miles on it and demand full MSRP for trade-in value, even though they didn't pay anywhere near MSRP on it when it was new. It also says somewhere in the Constitution that we have the right to 0% financing even if we have never paid a bill on time in our lives (it's in there somewhere, isn't it?)

Let's think about this: if you no longer want your big V8 truck that gets 12 miles to the gallon, it is very unlikely that anyone else wants it, either. It is not the dealership's fault that you still owe $18,000 on a vehicle that no one else will pay more than $7,000 for. Everyone wants better fuel economy, everyone wants a lower payment, everyone wants to trade their old vehicle in for more than he owes on it. It does not mean the dealership is trying to rip you off. They really are NOT going to sell the vehicle they paid you $7,000 for for $15,000. If you really and truly believe your rig is worth $15,000, why do you want to get rid of it?

How do dealers actually figure out what they can afford to pay you for your older vehicle? It's not really a mystery; the used-car buyers and appraisers are charged with finding the right Pre-Owned vehicles to sell on that lot. They know what those vehicles are worth; they buy and sell them every day, on the lot, at auction, from wholesalers. They know what they can buy that same car for and they know what other buyers are actually willing to pay for them. Colorado State Law (this is all regulated!) requires any dealer to check safety items and run certain tests on every trade-in - things that a private seller is NOT required to do. You can sell your car yourself with bad brakes, a cracked windshield and two bald tires (naturally, you will not get as much money for it if you don't perform the repairs.) A dealer cannot sell that same car without replacing the bald tires and windshield, fixing the brakes and performing a complete safety check on the vehicle. If the service department finds any other safety issues, they HAVE to repair those. Private sellers aren't even required to have their vehicles inspected, much less repair anything.

I don't know of any other industry, offhand, that allows and even encourages trade-ins like the auto industry has done for many years. I think the reason the car industry has always done so was that for many years the industry just didn't make enough cars to go around. All that started to change back in the 1970s and 1980s. Now that the average household has 2.28 vehicles (source: Feb 12, 2008 Car Buyers Notebook) we have way too many vehicles. Unsold new inventory has soared over the last ten years or more, with several domestic manufacturers in pretty dire straits. Naturally, this has depressed the prices for new and used - it's the old law of supply and demand.

This is why I believe that the traditional trade-in situation is going to have to change. New-car dealers have become so desperate over the last year or two to sell the new cars that are piling up in their inventory, that they have been willing to lose money on the trade-ins they accept in. That just can't continue, though - the traditional dealerships really are not raking in the big bucks. Maybe they did in the past - I've only been in the business for eleven and a half years, and this situation was already in progress when I started.

Next time: Arranging the financing