America
How to get a fair deal at a car exchange fair
New York, May 1
Want to exchange your old car for a new one at a dealership? Chances are that you will end up paying more, warns a new study.
New
research from the University of Southern California, led by
Sivaramakrishnan Siddarth, an associate professor of marketing, shows
that a consumer with a trade-in actually shells out more money to the
dealer than consumers without a trade-in.
"The most important
finding of our research is that your decision to trade-in your old car
tells the dealer something about you and your insensitivity to price,"
the authors said.
"It might be why car salespeople often ask you,
soon after stepping into a showroom, whether you're trading-in your old
car -- even before you discuss terms of the new car," they observed.
The
results indicated that dealers infer a higher willingness to pay, and
so charge higher prices to consumers who trade-in a used vehicle than to
those who do not.
Dealers charge even higher prices to consumers who trade-in used cars similar to the new one, the researchers found.
Buyers with a trade-in pay an average of $990 more than those who do not trade-in their used cars, according to the research.
In
addition, a buyer pays an additional $150 more if the trade-in is of
the same make as the new car, and another $64 more if it is the same
make and model.
"For example, if you're buying a new Honda and
trading-in an old Honda, the dealer may infer that you were happy with
your old Honda and probably are not considering Toyota, Nissan, or any
other competitive brand," co-researcher Anthony Dukes explained.
So
if you want a fair deal at the exchange carnival, don't open your cards
until you have reached a final price of the new car, Siddarth said.
The study is forthcoming in the Journal of Industrial Economics.