Sight-Unseen Trade-Ins Tricky for Car Dealers

Even under ordinary circumstances, the trade-in is a tricky part of a car deal.  

Auto dealerships want to avoid overpaying for a customer’s current vehicle, but a low-ball offer can vex people, even sabotage a sale. 

So, it’s tough enough performing a trade-in evaluation at the dealership. But it’s even harder in the 26 U.S. states where dealers are restricted to online-only vehicle sales because of coronavirus lockdowns. 

In those states, dealerships do trade-in valuations without actually seeing the vehicle until an employee arrives to both pick it up and deliver the newly purchased one.  

Patrick Janes Headshot_0

To avoid such scenarios, his company is recommending that dealers ask customers to use their mobile phone to take and send photos of their potential trade-in vehicle, even do a video walkaround.  

Dealers currently need all the help they can get to accurately determine trade-in and wholesale vehicle values, Janes says, citing the COVID-19 pandemic’s effect on nearly all aspects of the auto industry. 

Even if a dealer gets a fine set of photos accurately depicting a vehicle’s condition, there’s still the issue of determining its value in today’s topsy-turvy market.  

“We’ve seen wholesale prices drop, but interestingly retail prices haven’t,” Janes says. “Supply and demand 101 might tell you that will change. In appraisals, you’ve got to be highly cautious today. There is a lot of discussion on how you put an accurate number on a vehicle. How do you navigate that?” 

Dealers often rely on the Manheim Market Report for rolling used-car valuations. But this time it’s different.  

“MMR was designed to smooth out seasonal ebbs and flows of vehicle values, but we’ve never seen a drop like this,” Janes says of today’s nosediving used-car sales and their ultimate effect on wholesale prices.          

(TrueCar/ALG predicts about 1 million pre-owned vehicle sales this month, down more than 70% from a year ago, and down 60% from last month.) 

Janes recommends price-setting dealers instead use Manheim Market Report Retention, a guide that draws from auction data to offer a shorter-term look at where wholesale prices are. 

For example, if MMR for a given vehicle type is $10,000 and today’s MMR Retention is 95%, then the current transaction price at Manheim auctions is approximately $9,500. 

Because of the coronavirus crisis, Manheim has temporarily closed its auction facilities and switched entirely to online dealer auctions. That means MMR’s and MMR Retention’s systematic calculations are based on fewer transactions than before.  

“But at least we have some insights,” Janes says. “We’d be completely blind if Manheim stopped all activity.”       

Cox Automotive owns Manheim, vAuto and Kelley Blue Book, which offers a digital trade-in tool, Kelley Blue Book Instant Cash Offer. 

The data-driven tool lets dealership website visitors determine the value of their potential trade-ins. But today’s market being what it is, Kelley has temporarily shelved the online trade-in evaluator. 

“Kelley is working hard to get the values adjusted,” Janes says. 

Consumers can still request a cash offer for a trade-in, but they won’t get a value until the vehicle is verified by a dealer, and in many cases those dealerships remain closed.  

Kelley expects to bring the website feature back in a phased approach as states lift their stay-at-home restrictions.