I have so many clients who come to me and say, “I looked up my car on Kelley Blue Book, and it’s worth $XXX!”  Unfortunately, it’s probably not.  Let’s face it – we all love our cars (ok, some of us more than others) and think they are worth more than they actually are.  Guides like Kelley Blue Book often serve to confuse us further.  That is why I wanted to take this month to explain what truly determines a vehicle’s value.  Not to make you mad, but simply informed.  To do this, we first need to learn who this “Kelley” guy is, and where his “Blue Book” came from. 

Kelley Blue Book Co., Inc., began as the Kelley Kar Company, a Los Angeles based car dealership, in 1918, founded by Les Kelley.  The dealership with three used Model T Fords and one employee, his 13 year old brother Buster.   In order to build up inventory, he began circulating lists of cars he wanted to buy along with the price he was willing to pay for them.  These price lists quickly became a trusted “standard” (since nothing else existed) among Los Angeles area banks and car dealers.  In 1926, Les published his first “Kelley Blue Book”, a guide to used car values.  Over the years, Kelley Blue Book expanded nationwide and began to be used by insurance companies and lending institutions to estimate the value of a vehicle. 

The problem with Kelley Blue Book is that its estimates are based on vehicle values in California, which (like everything else) are higher than most other areas of the country.  This was acutally a benefit if you were applying for a car loan or anticipating a payout from your insurance company!  Unfortunately, the insurance companies caught on to this, and now most of them keep their own “books” with estimated values that are more favorable to their pockets.  Auto dealers like CarMax use the inflated Kelley Blue Book values to their favor, making you think that you are getting a good deal on a car when you are really not.  Some banks still determine auto loans based on Kelley Blue Book value, but many have moved to using the NADA (National Automobile Dealers Association) guides, which is based on both dealer and auction sales data.   Dealers have their own book, called the Black Book, that estimates the wholesale value of vehicles based on weekly auction data.  Edmunds.com has an online vehicle appraisal tool, but I have found their estimates to be high on most cars and low on others.

So, then, what does determine a vehicle’s value?  The same thing that determines the value of houses, stocks and cotton t-shirts – the market.   That market varies almost daily, depending on your geographic location, the time of year, and who is buying cars that day.   Everyone knows that convertibles sell better in the spring and summer, while SUVs sell better in the fall and winter.  Except in Florida.  You may ask, “If the market for my car changes every day, then how do I know what my car is worth?” 

If you want to get a rough idea of what your trade is worth, call any car dealer or Women’s Automotive Solutions and ask what the Black Book value of you car is, based on the make, model, year, mileage and condition.  You should also look on Cars.com and Autotrader.com to see what retail prices local dealers are asking for similar cars.  A dealer will usually sell a car for a few hundred to a couple of thousand dollars less than the listed price.  The dealer will typically offer you anywhere from $2,000 to $6,000 less than the retail price for your trade, depending on the type and condition of your vehicle, in order for him to make a fair profit on the resale.

The key things that affect your vehicle’s market value are year, mileage, reliability (of the make/model), popularity and condition.  Cars with high reliability ratings, like Honda and Toyota, hold their values better over time.  So do certain “high line” cars like BMW and Lexus because of their desirability.  A vehicle’s condition is determined by how well it has been maintained mechanically, the condition of the upholstery and paint, and whether or not it has been in any accidents.  A scratch or scrape in the paint may lower the car’s value by a few hundred dollars.  If you smoked in your car, you will typically lose over $1,000 in value!  Finally, if you show up to the dealership with a car that hasn’t been washed or vaccumed in months, don’t expect them to offer you top dollar.  They will have to spend several hundred dollars to get the car cleaned up and ready to resell.   Remember - dealers are people too – and everyone likes a clean, shiny car.