It’s the question on every car buyer’s mind: Am I paying a fair price?
Answering that question involves so many factors–from hidden dealer rebates on new cars to the number of miles on a used car–that it takes millions of listings and professional analysts to accurately determine the true value of a vehicle. That’s why the Kelley Blue Book has become the gold standard in the auto industry.
“In terms of pricing transparency, we’re closer than we’ve ever been,” says Alec Gutierrez, director of valuation products for Kelley Blue Book. “We use more robust models to determine values that are relevant to the transaction and give buyers insight into what they should expect to pay.”
Originally started after World War I by Les Kelley as a list for dealers and banks of cars Kelley wanted to sell at his dealership and the prices he was willing to pay for them, it blossomed into the official Blue Book in 1926, cataloging prices for vehicles ranging from Cadillacs to Pierce-Arrows. Today, the KBB has data on thousands of models of cars, trucks, and vans with more than 3.4 million active listings. Each week, KBB monitors tens of thousands of dealer sales and tracks as many as 90,000 sales at auctions.
One particularly important source of pricing information is dealer or wholesale auctions. “You’ve got well informed buyers and sellers–the dealers–there bidding on cars that they then clean up and resell,” explains Gutierrez.
“We also incorporate a number of macroeconomic factors that influence what cars people want to purchase,” adds Gutierrez. He says gas prices have a major influence. “In 2008 when gas was over $4 a gallon, SUV prices dropped 20 percent in 30 days,” Gutierrez notes. So KBB updates pricing information weekly. It also takes into account factors such as new home construction; when the real estate market is positive, small businesses buy more new trucks, driving up prices.
There are also regional differences. Convertibles will command a higher price in sunny southern California than in the Midwest. So depending on your zip code, a vehicle may be worth more based on demand. On the other hand, prices for popular vehicles like the Honda Accord or Toyota Corolla don’t vary as much across the country.
The regional differences are the main reason KBB also needs a buyer’s zip code to determine what the fair market price range is in that area. In total, KBB monitors over 100 separate regions in the country.
Buyers may also see better prices in areas with more dealer competition. “So you may save a few bucks if you live in the country and drive into the big city where there’s more competition,” Gutierrez says.
Used car prices also tend to be seasonal, starting off higher in the beginning of the year through the spring and then trailing off for the rest of the year. “We’ve seen some record highs in the used car market, and we’re likely to see peak prices in 2016,” Gutierrez acknowledges. However, he thinks such prices may decline in the future as the supply increases, especially from cars coming off of leases, which represented 30 percent of all new models sold last year in the U.S.
As for sellers, keeping the mileage low is still the best way to retain a vehicle’s value, “although you can’t do much about that,” Gutierrez admits. But one needs to keep a car up to date in terms of regular maintenance and recalls because, he notes, “the very first thing people check is the vehicle history report.”