In line with Adski's other thread, I also have had a rather inquisitive day. Having almost agreed terms on a new car, I am wondering who actually decides on the value of a used car?
The dealer refers to their litle black book (presumably Glass's), Glass's will no doubt claim they take their values from actual cars that have sold in auctions and forecourts and the prices they realised.
But the man at the auction would most probably have been referring to his Glass's guide before bidding...
Is this a vicious circle or is there outside forces applied to it?
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There are regional variations too - You might get more for a new-ish RangeRover in CHeshire or London. My uncle used to make a reasonable living buying from Northern auctions and selling in the south.
Traders will be prepared to pay a little above book for something that'll sell, and a little under book for something which they'll find hard to shift.
The big lease companies are forecasting this sort of thing 3/4 years ahead - in order to be competitive, they have to be as accurate as they can - if their competitor reckons a car will be worth 42% of list in 3 years and they reckon 45% they'll be able to offer slightly better lease terms. Of course, they might get it wrong - if the car actually makes 40% they'll lose when its sold at the end.
Diesels are causing some debate at the moment - will they still be worth a premium over petrol in 4 years, given the much greater numbers now selling?
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I should have finished the circle ...
Traders will be prepared to pay a little above book for something that'll sell, and a little under book for something which they'll find hard to shift. This means that the values will gradually fall into line, either upwards or downwards. So at a moment in time the book will be wrong, but on average its about right.
The reason the traders pay slightly above or below book is much like a share dealer at an investment bank. If you think that SHell is slightly under-valued at the moment, you buy. If over-valued you sell. Similarly, if you think that in your part of the country you can afford to pay 2% over book for a Mondeo and still make a profit you'll tend to buy it. If everyone thinks the same it drives the book value up.
Occasionally, you'll find manufacturers doing all sorts of things to try to establish 'low' depreciation on a new model - like putting a few really good ones with minimal mileage through the auctions so they seem to get good prices.
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Regarding lease residual values....nowadays often a leasing company will involve a large auction house or other reseller when they are negotiating their lease. They will have a guaranteed residual value even before they have bought the cars. Then they can predict precisely what their costs and profit will be.
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Whatever Glass's Guide states (and prices are worked out from the average of sales of any particular marque, allowances for mileage and the level of supply and demand of individual models), there's nothing to stop you haggling as much as possible to get the best possible "cost to change".
Remember, the car salesman needs you more than you need him - there are literally millions of cars on UK roads - and dealership profits on used cars over a year are approximately six times higher on average than for new ones.
That puts you in a very good bargaining position; try walking away after spending half-an-hour or more with a used car salesman after politely stating you'll weigh up his/her offer back home...:-)
You could well be surprised with what additional incentives suddenly materialise.
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Who values used cars - Buyers do.
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Not quite. A buyer is offered a vehicle at a particular or jointly agreed figure - it is up to him/her whether to accept that offer.
The salesman always has the upper hand as only he/she is fully aware of what profit margin is eventually raised by the sale.
That's why a buyer can never totally win as there is always the nagging doubt that something even better price wise could have been achieved.
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No, the "correct" price is the highest at which one buyer doesn't walk off, because that is also the lowest price the trader is willing to accept.
If every buyer walks off then the car is priced too high and eventually the trader must relent.
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Again, not quite true. I've several friends who are car salesmen; one of them works for one of the country's biggest Ford dealerships.
We've spent many a time discussing his job and he's told me about the various incentives he can keep up his sleeve until he can finally clinch, or otherwise, a potential sale.
For obvious reasons - we are talking about a big and expensive to maintain dealership in this case - there is a cut-off point at which he is unable to go any lower on price.
But he maintained that it's very, very rare to actually get to that rock bottom position.
That's why a customer will never know if he/she could have done even better.
At least if you buy a tin of beans in Tesco you know what you will pay from the start...:-)
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Totally true I'm afraid. That's the law of supply and demand in action.
Price too high - purchaser won't purchase.
Price too low - vendor won't sell.
Between these two points, and price will do and is dependant on the gift of the gab shown by the vendor and purchaser.
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