Take the mystery out of the trade-in valuation process and you may find yourself closing more deals.

Is it my imagination or is the word “transparency” more than a little overexposed as of late? It appears all over the news media, politics, and frequently in language about the consumer experience across multiple industries.

Many companies in the consumer product space are claiming to be working towards some form of greater transparency, and automotive companies are certainly no exception. Given that a car is the second largest expense in the family budget, the appeal of transparency in every aspect of the transaction is very appealing. I fully expect there is still more transparency to come, specifically in the area of valuation of a customer’s trade-in vehicle.

We’ve witnessed many waves of transparency in the car business. Of course it’s now quite routine for consumers to arrive in showrooms almost as familiar with the product as the sales professional. Options, pricing, colours and that sort of information are easily found online. The customer might even be rather aware of the incentive programs that month.

A source of frustration

One of the last aspects of a car purchase that often remains less than transparent, and as a result is often a source of great frustration, is the valuation of a customer’s trade-in, a potential frustration for both the consumer and the dealer.

Several years ago, while working for an OEM, I clearly recall a conversation with the top sales person in the country for that brand. He explained to me that he lost more deals at the trade-in valuation stage than at any other step in making a deal with a client. I found that insight surprising, but it ought not to be like that.

That said, in many respects grief from both sides of the desk regarding the trade-in process is not at all surprising. The process is contentious, can seem like witchcraft, and can have a very significant effect on that monthly payment.

The first time I traded a used car in, I confess, I really had not done my homework. To be honest, I was a bit shocked at how low my trade-in value was. The salesperson took the time to explain about wholesale prices vs.

retail prices and even showed me the little Canadian Black Book to validate his price and explained his reconditioning costs. His careful, logical and open book explanation worked for me, and our family is still a client of his. Transparency!

Canadian consumers

Each year when we survey Canadian consumers in our annual IPSOS poll we ask them about their trade-in experience and their knowledge around the purchase process. This year we found only 49 percent of respondents claim they had a good idea of what their trade was worth ahead of time, leaving 51 percent who had not done their homework.

The same survey showed 33 percent received less than they had expected, compared to 18 percent who got more than expected. Before visiting a dealership only 30 percent ranked Online Trade-In Value Calculators in the top three as a shopping research resource they would use. It seems that consumers are not as prepared as they could be.

We launched our own consumer website almost seven years ago. This was born from the many phone calls and emails we would get from consumers asking for us to please tell them what their car was worth. We saw the need and responded.

We output a range of values based on the car’s mileage and where the owner resides. The range extends a little over wholesale value to a little below. This addresses cars that do come in on trade that require reconditioning before they move on to be sold again.

Avoiding friction

Bottom line is, expect pitfalls when consumers are not familiar with the value of their trade. What can a dealer do to make the experience more pleasant… dare I say it… transparent?

Knowledge and education can help overcome many consumer concerns. Consider explaining exactly how the valuation is calculated. Not just the number. Explain that the values provided for trades are wholesale values and the dealership has to invest to repair the car or to pay a fee to move it through the auction for an uncertain return.

I recently visited a high end luxury car dealership and asked them about their appraisal process. They showed me a quote they had just prepared, and it made total sense. There were reconditioning costs; what the store would sell the car for; their profit; and from here they worked backwards to come up with the trade value. That is, in my opinion, exactly what the customer needs to see, too.

Consider developing a worksheet you can show the customer, and a list of Frequently Asked Questions (FAQ) about trade valuation. In there you can cover common issues, such as why listings on a used car site can be misleading (it’s asking price!) and give the customer some appreciation for how much it costs to send a car to auction and how much typical reconditioning costs are.

The retailers who can bring transparency to the process should see higher close ratios and hopefully more return business by customers who felt they were treated fairly and can “see through” your trade valuations.