First, before you even begin negotiating on a new-to-you vehicle you should determine if you can and/or are willing to sell your old ride. Naturally, if your are truly frugal you will have driven your old vehicle into the ground and donated its remaining carcass to a charity like Kidney Car for the tax receipt or to a scrap car dealer for the value of its metal, in which case this point is moot. But let’s assume you have a vehicle with some residual value left that you’ve decided to move on from for whatever reason. Improved reliability in your vehicle if you are doing long distance and out-of-town driving is a very good reason. If you are the original owner and have all the service records, and are willing to have the vehicle safety certified, you may have pretty good odds of selling your car privately. If you’ve checked the car valuation sites like Canadian Black Book and VMR, your car is likely worth somewhere in between the wholesale and retail values provided. Similarly, if you’re in Ontario and pay the $20 to get the Used Vehicle Information Package (UVIP) you need to provide as the seller in a private sale, that document will also give you a typical range of prices your car might sell for. If you can get anywhere within that pricing valuation, you are likely better off selling your car privately. It’s a guarantee that you will get less than that value trading in at a car dealership.
The downside to selling privately is that there will be sunk costs (certifying the vehicle, buying the UVIP, advertising – if you want to ensure prominence of your ad) which may not result in a sale. Or at least not a sale at a price you consider to be acceptable for your vehicle.
Did you know that one in six vehicles on the resale market have been in some sort of accident?
While the dealer may not give you as much for a trade-in as you would like, there is a big upside to the trade-in option; this is the offsetting tax benefit you’ll gain through the trade-in process. In Ontario, where the Underground Man and I live, we pay a consumer tax of 13% on all purchases – including all vehicles, new or used. However, if you trade in a vehicle when purchasing a vehicle at a dealership, you do not pay tax on the amount of the trade-in. Or to be clearer, if buying a $10,000 car straight up, including 13% tax would add $1300 to the purchase price, resulting in a total of $11,300 cost. But if you trade in a car valued at $5000, you only pay taxes on the remaining $5000 purchase, 13% of which is $650, saving you $650 in taxes compared to walking in with $10,000 cash.
One of your best negotiating tactics, either for reducing the price or ensuring problems are fixed before you settle the transaction, is to perform a full inspection of the vehicle. You should always inspect it yourself, in addition to doing the test drive. Look in all the nooks and crannies, like wheel-wells and seams, to see if rust is starting to show up. Oftentimes, if a vehicle has been rust-proofed, this is where you will spot evidence of that treatment. I personally consider rust-proofing to be the ultimate sign of a previous car owner having been willing to invest in preventive maintenance. So you’re not only looking for bad signs, but good ones as well.
If you really want to get serious about it, Popular Mechanics published an incredibly detailed used car checklist. But if you have a mechanic who you trust, you probably don’t need to go to that length yourself. Simply ask the seller for permission to take the vehicle to your mechanic for a full inspection. It will, of course, cost you the price of the inspection which may well be a couple hundred dollars, but given the investment you’re making, isn’t it worth it?
Did you know that one in six vehicles on the resale market have been in some sort of accident? Before even doing a mechanical inspection, you should always ask the seller for a copy of the CarProof report to learn the history for your vehicle. Some dealers may offer a CarFax report, but from all I’ve read, the most accurate reporting is CarProof. And if you’re buying from any sort of a dealer, don’t accept them saying they don’t have such a report. They do – otherwise they wouldn’t have the vehicle on their lot. They know what they’re getting into, and will definitely run a report on your proposed trade-in. So make sure they show you the report on anything you’re considering buying. If you are doing your research on Autotrader, many dealerships will proactively offer a CarProof report with the vehicle listing. Some private sellers will also provide the CarProof on Kijiji. But if you are buying privately, you may have to pay for this report yourself if the seller isn’t willing to provide. It’s worth it, since any accidents and insurance claims against the vehicle will be reported on. And if the vehicle has been salvaged – run, don’t walk away.
Here’s a very interesting option we learned about recently, that combines the best of both worlds – selling your car privately and getting the offsetting tax benefit of a trade-in. It’s called a convenience sale/trade or, in Quebec, an accommodation sale. Dealerships won’t tell you this option exists, because there’s not really much benefit in it for them, but if it means they make the sale of a vehicle they have on the lot, they’ll most likely do it for you.
Since a private buyer of your used vehicle is going to have to pay tax on the vehicle regardless (at least in Ontario and Quebec – they pay it when they register the newly purchased vehicle), it makes no difference to that buyer whether they pay it directly to the Ministry of Transportation or via a dealership, since the cost is the same. The only thing the buyer cares about is how much he’s paying for the vehicle. But since you, the seller, can get a reduced tax payment by ‘trading’ the vehicle through the dealership, it actually reduces the cost you will pay for your next vehicle. Which may allow you to drop your private sale price slightly more than you would otherwise – helping out your buyer’s budget. The only one who gets nothing is the dealership. Well, that’s not really true. The dealership will still get the profit on the vehicle they sell to you. They may also charge an administration fee for the service, so be sure to ask about that and how much, if it is the case. That also needs to be factored into your transaction costs.
So it’s a win-win-win option. Your buyer gets a slight reduction on the price of your vehicle. You get a reduced cost by the off-setting tax payment on your new vehicle. And the dealership gets to move a vehicle off their lot, at a profit, without having to take in a trade vehicle that may or may not make them any money. Plus the dealership gets goodwill from two car purchasers at the same time. Who knows how that may pay off for the dealership through word of mouth recommendations in the future?
A few key things to remember; first – research is key. Research features of models you may be interested in. Research what problems those models may be known for. And don’t forget to research the appropriate pricing for the vehicle you’re considering buying as well as the one you have on hand that you may either sell or trade in.
Second – history and condition of a vehicle dictates everything. It dictates the ultimate value of the vehicle, as well as what it’s likely to cost you to maintain it in the future. It will very much dictate whether or not you’re likely to be able to sell privately or if you may be stuck trading in for whatever value dealerships determine your old vehicle still retains.
Third – you’re the buyer, so that puts you in the driver’s seat. As long as you start the car search process when you are not in a rush (as in you have no wheels and need transport immediately), you can take your time and wait for the right deal to come along.
Fourth – beware the curb-sider. This is an individual who presents themself as a private car seller, but in reality is someone who deals in multiple used vehicles but without any of the oversight required of licensed car dealerships. Best tip to weed out curb-siders when calling about what appears to be a private car sale? Just say “I’m calling about the car you have for sale.” If the response is “which one?” you know you’re dealing with an unlicensed car dealer and should walk away. The only thing worse than a used car salesman is an unlicensed used car salesman.
Finally – don’t underestimate the power of word of mouth. Let people in your network know you’re both looking to sell your old car and interested in buying a new (used) one. I’ve sold more than one old car that way, to someone who knew how well I maintained my vehicle. And I’ve gotten really good deals on friends’ used vehicles that they would rather sell to me for a fair amount than trade in to a car dealership. Just make sure you are sufficiently pragmatic that if the car suffers a major malfunction immediately after the sale that you will understand stuff happens. Getting a deal (or not) on a car is not worth wrecking a friendship.