What to do with that used car?

So you’ve bought a new car!  What did you do with the old one?

I received a couple of questions regarding what to do with a used car after you buy a new car under the method I shared recently.  That’s a good question.  Obviously, you would like to get the very best price on the new car you are buying and on the old car you are selling.  However, I don’t feel like the new car dealership is going to be the best source to achieve each of those objectives. 

The new car dealership is the best, and probably the only source for buying a new car.  That’s pretty simple.  When it comes to selling your “old” car there are more options.  You could “trade-in” the car to the dealership selling you your new car.  You could sell your car to a private party or you could donate the car to a qualified charity.  You could also sell your car to a friend but only to people that you wouldn’t mind losing as friends.  Lastly, you could give the old jalopy to one of your relatives for free or at a deeply discounted price. 

Let’s explore these options.  Before I go any further I’ll tell you that my objective in buying a new car is to buy what I want at the very lowest price.  I don’t care if I have to drive a little further to a dealer that offers the lowest price.  When selling my old car to either a dealer or a private party I want to sell for the very highest price even if it takes a bit more effort.  Along those lines, I remember complaining, for lack of a better word, about the commute time to our Los Angeles based office to my P&G boss.  He looked at me and smiled, “Randy, that’s why they call it work!”  If you want to get the best price on your old car you’re going to have to work at it a bit.

My recent new car purchase of a 2014 Lexus RX350 for Carol came in just a few dollars under $40,000 before tax and license.  Her “old” car is a 2007 Lexus GS350.  The car has been driven easily by Carol for 75,000 miles.  By the way, this is not an offer to sell this car to anyone in this conference!

I ran over to Kelley Blue Book’s website (www.kbb.com) to get some resale information on our used car.  They told me, after I entered the pertinent information, that a trade-in price to a new car dealer would range in the $15,337-$16,496 range.  I would check with a Lexus new car dealer about this price only to find out their offer was less.  On the other hand, selling the car to a private party should yield about $17,200 given the car’s “very good” condition according to KBB.  I resisted rating the car as “excellent” even though I really think it might fall into that category.

Based upon those numbers I can make an extra $700-$1,900 selling the car myself vs. trading it into a new car dealer.  However, if I could sell the car for MORE than the Kelley Blue Book price I could make even more.  Remember, I’m retired.  My objective, with cars, is to buy for the least and sell for the most.  I have time to sell the car myself.  I don’t have to sell it this weekend but I don’t want to wait six months either.  I understand the above numbers are only estimates.  I might do a little worse or I might do a little better.

Someone in our conference did suggest a clever way to manage sales tax in their state when using a trade-in car on a new car purchase.  Let’s use California’s state sales tax for this example.  State sales tax in California, for my area, is 8%.  Yes, California is #1 in so many things including state sales tax rates.  It kind of makes me feel good that we can collect so much money to pay for our 10-lane freeways.  But I digress.  What’s the clever way to use sales tax when buying a new car and selling an old one recommended by one of our users (I would credit the individual but I don’t have his/her name)?

If your new car costs $40,000 at an 8% sales tax rate then the sales tax is $3,200.  However, if you trade in your car to the dealer with a credit of $20,000 for your trade-in (using these numbers for simplification) then the “final” price is only $20,000 for which you owe 8% sales tax on that amount or $1,600, a $1,600 savings.  I thought this would be a great idea for my deal in California.  Unfortunately, some state tax guy beat me to the punch and California does NOT allow this strategy.

I did mention in passing the idea of a trade-in to my new car salesman.  He pointed out two reasons why he would not be able to give me the best price on my used vehicle.  If “retail” was $17,200 (see above) they couldn’t give me that price for two reasons.  If they wanted to resell it on their lot for “retail” price and they had already paid me retail price then they would make “zero” profit.  On the other hand, if they paid me the “retail” price for my trade-in and then wholesaled the car away they would lose money based upon what the car would bring on the wholesale market.  That all made sense to me.

Before we go any further let me share what I learned in talking to a new car salesman several years ago when buying a new Lincoln Town Car.  We had closed the deal for $300 over invoice.  This was before I discovered the best way to buy new cars (by surveying every dealer in the marketplace via the internet).  The salesman and I had some time to talk while the new car was being readied.  We got onto the subject of his compensation.  That seemed only fair.  He knew how much I was making based upon my loan application!

He told me he made 25% of the dollar amount the car (in this case $300) sold over invoice price.  He was making $75 on our transaction.  In a nice way I asked him how he could spend as much time with me as he had, and on the next guy who might come in and not buy a car at all for $75?  His answer was intriguing.

“I can’t make much of anything selling new cars.  Everyone knows how much we paid for the new car (invoice price) and they won’t pay much over that if any.  However, take a look out the window.  See that used Corvette sitting over there?  I’ll make $5,000 selling it.  People don’t understand the value of used cars nearly as well as they do new cars.  When that is the case we can buy used cars cheaper than their real value and sell them for more than their real value because people just don’t know the real value of used cars”.

At that point, I spotted a very pink sedan sitting in the back row of the used car lot.  “What about that pink one?  Will you be able to sell it?” I asked.  His reply was a classic.  “There’s an ass for every seat!” he told me.

In order to sell our ’07 Lexus GS 350, I advertised it for free on Craig’s List.  I also paid $100 for the best quality (biggest, more pictures) ad on AutoTrader.com.  Then I came across www.oncedriven.com.  They charged $189 to sell the car through their network of potential buyers.  However, if I sold the car on my own in the first 45 days OnceDriven would give me a refund of $160.  I also took it to the local car wash for a good cleaning.

I started out asking $21,900.  That was a high price considering the Kelley Blue Book value was just $17,200.  Nevertheless, I figured there might be some uneducated, unsuspecting fool with his aunt’s inheritance hanging out of his back pocket.  That didn’t work but it was worth a shot.  Later I lowered the price to $20,900.

We showed the car just twice.  It didn’t help that I was traveling every weekend during this seven-week process.  Weekends are when most people want to buy used cars.  Why?  They are working, in most cases, during the week.

Finally, we lowered the price to $19,900.  Then a buyer came along and bought the car for $19,000.  That was $1,800 more than Kelley Blue Book.  During the time we were trying to sell the car I took it to a local Lexus new car dealer.  They offered me $14,500.  That means I sold the car for $4,500 more than selling it to a dealer.  Pretty good huh?


The buyer paid in cash.  That’s a LOT of cash.  Then we went over together to the local AAA outlet and did all of the paperwork transferring ownership.  Folks, that how you do it.  Any questions?

There was really very little physical work involved.  For some 99% of the time, the car we were selling sat quietly in the garage awaiting its new owner to come along.  How much effort would you be willing to put in for $4,500 advantage vs. the “easy” way of simply trading in the car to a new car dealer?

Some folks might not want to do what I have described above for $4,500.  I do it just as much for the sport of the conquest as much as anything else.  However, it is a very profitable form of “sport”.

People who don’t want to sell their cars on their own will get a less selling their car to a new car dealer.  However, they will “think” they got a great price because everybody who goes to Vegas thinks they really won, right.  Others will give their cars to their family or children.  We did that with a 2004 Lexus LS430.  We shipped it off to our son in Hawaii.  He needed a car and we didn’t need any money for the car.  Nevertheless, every time I talk to him I ask him “How’s the car doing?”  So far so good, it’s only been a year.  However, I will feel badly if the car needs a major repair even though we gave the car to our son.

Toward the end of the year, you will hear lots of advertisements regarding donating your used car to charity.  You won’t realize much cash from a transaction like this.  You, and the charity, would likely be better off if you sold the car yourself and then gave the proceeds to the charity.

Finally, you could sell the car to a friend.  I do not recommend that.  There’s a reason the old adage “Never sell a used car to a friend” has never died out.  You could also sell, not give, your car to a family member.

Good luck with whatever method you choose when unloading that old bucket of bolts sitting out in the driveway!