The Negative Equity Car Dealer Scam

Car dealers routinely make far more profit on the “iron” when they sell a used vehicle instead of a new one. The reason is simple. New motor vehicles have a window sticker on them that tells you, in a very honest way, what the suggested retail selling price is. That is only because Federal Law says they have to do it.

There is no “suggested retail price” for a used vehicle. It is whatever the dealer can get away with. As a result, they tend to try to get away with a lot — a lot of your money. That is where “negative equity” comes in to help them make extra profit.

Watch out when a car dealer says that you have “negative equity” in your trade-in. Half the time it probably isn’t true at all. The other half of the time, it probably is not as bad as they want to make you think.

“Negative equity” simply means that your trade-in vehicle has a fair market value that is less than what you owe on it. This could be because you have not owned it very long and you still owe a very high payoff on it. It could also be because the last dealership you traded a car in, and who sold you this one, started you on this “negative equity” cycle.

You need to know, for certain, what your trade-in vehicle is really worth. You can look it up in books you can buy at the bookstore or find at the local library, or you can even ask a local bank to give you the value numbers. Those numbers come from several different publications. There is what some people call the “Blue Book" (which is really yellow) published by the National Automobile Dealers’ Association. Most libraries have this and many bookstores sell this. Car dealers get it monthly and it lists the base price of the vehicle for trade-in, wholesale and retail purposes, along with options that are worth anything and deductions for high mileage, among other things. These numbers are probably “conservative” but perhaps more realistic than the other books that are available.
Another recognized publication is the “black book” guide. This is a small, almost tiny, price guide for vehicles which has usually much lower numbers in it than any other value guide. Many car dealers prefer this book simply because it has the lowest possible number for trade-in values, so they can be sure they are very likely to make a profit if they use these numbers when they appraise a vehicle. Consumers are not able to get copies of this publication.

Different areas of the country find one book more popular to use than the other, but virtually everyone uses the NADA “blue book”.

However, if you want to know what your vehicle is really worth, forget about all of those books. Instead, look in your local newspaper or “trading post” or car magazine. The odds are that the most realistic and accurate numbers are going to be found there. Before going to trade your car in, you should check all of this out and you might want to call your local credit union or bank too. Don’t forget to add something if your vehicle has low mileage or is in extremely good condition.

In any event, just remember: “negative equity” means only one thing to a car dealer — Positive Profit!

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