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Determining Value of a Used Vehicle

Have you ever wondered what that old car in your driveway might be worth? If you’ve ever considered selling a car, then you’ve almost certainly pondered this question. How do experts and buyers come up with the offers they do when looking to buy your car?

Of course, there are resources you can quickly check such as the Kelley Blue Book to get a quick idea of the various values of your car depending on how it’s sold. However, the question that these numbers don’t answer so well is “how did we get these numbers?” That’s what we’re exploring in today’s blog.

Factors Used to Determine a Vehicle’s Value

Make and Model

  • Brand value means a lot in the world of used car sales, and the fact is that some brands are “more equal” than others.

You may look around the automotive market and think that most brands are essentially the same with a few exceptions, but actually the specific make and model has a strong bearing on value more often than you think. As you might expect, luxury marques like Mercedes-Benz or Mercedes-AMG, BMW, Porsche, Lexus, Infiniti, Audi, and so on are likely to be worth more. They were worth a lot more to begin with, and don’t necessarily depreciate as fast as other cars.

Specific models within a brand can also be more significant in value. For instance, Ford is generally considered to be an affordable brand rather than a luxury one, but a Ford Mustang will certainly cost you more and would be worth more if you were selling one. In addition, regardless of the brand, the higher the trim level of your model, the more value it has because “high trim level” is typically synonymous with “more great features” (see further below for features).

Fuel Efficiency

  • In these times of uncertain gas prices, fuel efficiency has never been more important for people when looking for a car. The more efficient, the more valuable a car is.

When looking at litres used per 100km, we always want that number to be as low as humanly possible, don’t we? To get certain cars like a large 3-row family SUV, we understand that the fuel efficiency might not be ideal, of course, but when it comes to pure value, greater efficiency is worth a lot.

This is especially true in the modern climate where global supply chain problems and even wars in certain parts of the world have led to skyrocketing oil prices and a great deal of uncertainty as to where supplies will come from next.

A fuel efficient car is worth paying a bit more for because you’ll offset some of the extra costs with fuel savings over the years you drive it. Since the financial benefits can take time to accrue, however, the more additional positive factors in this list that you can combine with fuel efficiency, the more valuable a vehicle will be.

Target Market

  • Demand in your target market will certainly affect value. A saturated market where the model you’re selling is commonplace will make that purchase price lower.

Market demand certainly has a huge impact on the value of a used vehicle. You could have a fantastic car in great condition and with terrific features, but if there’s little demand, then value will always be negatively impacted. Market demand is somewhat more forgiving on luxury cars since they generally exist in smaller numbers and sell in smaller quantities anyway.

If you have a mainstream model like a Toyota Camry, or a Honda Accord, for instance, then chances are there will be market demand because they typically sell well and people like them. However, if the local area dealerships are already awash with Camrys and Accords, and not enough people to buy them, then the model you’re selling instantly has less value.

This idea just follows basic economic principles of supply and demand. Sometimes if you’re planning on selling a car, it’s prudent to research markets where your car is in greater demand before choosing a dealership to whom you’ll sell it. Just going to local dealerships limits your choice.

Condition

  • A car in great condition will need fewer additional dollars spent, and thus is worth paying more for

This one is a fairly obvious factor that’s understood quite universally. Cars in poor condition will be worth less than those in better condition because dealers or other buyers will have to spend additional dollars to repair them, detail them and make them ready for sale. If expensive repairs are needed to systems like the transmission, then these repairs can be expensive and so will greatly impact the value.

Dealerships have to try and make profit from the used cars they sell. If they know that a vehicle needs at least $1000 worth of repairs, then they’ll knock off at least $1500, maybe even $2000 from the value. They have to so as not to allow any negotiated and finalized sale to eat too much into the profit margin.

Colour

  • This is connected to market demand, too. Some colours are more appealing than others, with metallic and pearlescent paint being worth more than solid paint.

Most cars on the road right now are actually quite monochrome in colour, with just 4 colours dominating the entire market: white, grey, silver, and black. The first real colour to follow those is red, but it’s still behind the number of white cars on the road. The reason for this is that these 4 colours are typically the standard colour offered and people are unwilling to pay $300-1000 extra to get a different paint job.

Rich colours in metallic or pearlescent paint will always tend to be worth more than cars with simple solid paint. Metallic and pearlescent coats are harder to apply and thus add to the production cost. Popular colours will change with fashion, of course, but ultimately value depends on the local market.

If dealers know that brighter metallic colours like blue and red do well in their area, then they’re more likely to attach more value to those. White cars are often perceived as easily dirtied, or people worry about rust and corrosion being visible on them. Another key rule, however, is that stock paint will always do better than custom paint jobs because a custom paint design is considered too niche; lacking in universal appeal.

Accident History

  • A car with an accident history is naturally worth less than one with a clean and accident-free past.

Why is it that a car with accidents in its past is worth so much less? Haven’t the problems from the crash been fixed? Why reduce the value like that after it has been restored to like-new condition? The fact is that accidents make cars more vulnerable to subsequent damage, and wear and tear. Furthermore, cars that have been in accidents are not entirely original because they’ve had many parts replaced.

The higher the number of accidents and the more serious the damage that has been done, the less value the car has on the market. When there are so many cars with clean accident histories, there’s little reason to put much added stock into cars that have chequered histories. If the car is special or even unique for other reasons, then accident history might be overlooked.

Features and Add-Ons

  • Some features are highly sought after and will greatly add to a used car’s value, especially high-tech, premium and driver assistance features.

OEMs like to talk about the unique features that their cars offer, either as standard in the base-level model, or in the various trim levels. The more feature-rich your car is, the more likely its value will also be higher. Of course, not all features are equal. Having more cup holders or a larger glove box won’t be enough to add significant value, for instance.

Where the real value lies is in technology features, especially driver assistance features, and premium audio and infotainment systems. Besides these, you can also expect a car with leather seats, and soft-touch materials around the dash, doors, and other surfaces to be worth more. Cheap scratchy plastics will bring the value down.

Driver assistance features of value include advanced cruise control, lane assist, parking assist, rear-view camera, 360-degree parking camera, and so on. Additions like heated driver’s seat, or driver’s seat memory function are also going to add more value.

Industry Inventory

  • If sellers have a demand to meet but a low existing inventory, then the advantage will go to the seller.

Since the start of the pandemic, available inventory of used cars has become more strained than ever. The biggest contributing factor to this has been the ongoing shortage of semiconductor chips.

At the beginning of the pandemic, many OEMs cancelled their orders for new chips, believing that the pandemic-induced drop in demand would continue for a long time. As it happened, demand quickly returned and surged. A sudden restoration of demand for chips, along with production delays caused by lockdowns, and even fires in key facilities in major producer nations like Japan, has left the world desperately short.

Those chips are a critical component in modern cars, and it has slowed the production of new cars. Rather than wait weeks and months for new cars to become available, people have been increasingly turning to buy used vehicles, creating a surge in demand for used vehicles and lower levels of industry inventory. If you have a popular model of used car that is in short supply, dealers will typically pay well to take it off you.

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