TRADES: Understanding the Economics
When considering trading in your current RV, it is helpful for you to understand some of the economics of a trade transaction.
When you buy a new RV and trade in your current RV the dealer is often faced with a financial problem. Usually a bank or other financial institution is financing the dealer’s inventory. When the dealer sells an RV, the dealer must pay off the inventory “loan” for that RV to the bank. If the trade is worth more than the dealer’s profit margin (almost always the case), then the dealer will not be collecting enough cash money to pay off the inventory loan. This is referred to as a negative cash flow transaction. The dealer must find a way to cover the shortfall in cash. This is typically done thru used inventory financing or by liquidating the trade-in by selling it immediately to a wholesale buyer. Banks that engage in used inventory financing do not advance the full value. They limit the amount they will loan the dealer for the used inventory to 50% to 70% of wholesale book value. Wholesalers buy at a safe price, low enough to be sure they can sell for a profit even to another dealer or wholesaler. In either case the dealer has far less cash flow than in a no-trade situation. A trade means less cash available to pay the dealers obligations and a lot more hassle to get the cash. This is why many dealers discount RV prices when there is “no-trade”. This is also why dealers do not always accept trades.
All dealers buy at wholesale and sell at retail. If you want the best possible price for your current RV, there is only one way to get it . . . Don’t trade – sell it yourself!
When you trade your RV in you are actually selling it to the dealer accepting the trade. The dealer is buying your RV to resell at a profit or at minimum, to liquidate into cash quickly. That means all dealers buy at wholesale. Some dealers may try to hide that fact by adding the discount they would be giving you to the wholesale value to show you the “pretty” numbers – high trade numbers – usually close to retail value. Worse, some do not post any prices and then inflate selling prices when they know you have a trade to give more trade value “room”. They ARE still buying your trade at wholesale cash value.
Think of the difference between wholesale and retail as the service charge that the dealer is charging for liquidating your RV for you. This is a good way to look at it since if you want to avoid the costs, you can sell your RV yourself and pocket the difference if you are willing to do the work. Unfortunately this does involve considerable time and effort and as with any professional, the dealer has some big advantages that you will have trouble matching. Dealers can provide financing, take trades, process title work and lien payoffs as well as provide support and warranty coverage. They also have traffic looking for RVs everyday. On the other side however you may have an advantage in that many buyers think private sales are a better buy and you don’t have to worry about repeat business. Customer satisfaction is a matter of pride and values, rather than business necessity.
Even selling privately, to get top dollar you may need to be willing to stand behind the condition of your RV. That means you must be willing to pay all the expenses required to put it into safe and functional condition as well as make it clean and ready to use. Many buyers are also looking for assurance that the RV is working properly and won’t need any expensive repairs. To get top dollar, you may need to guarantee the RV’s condition for 30 days or more.
Let’s look at one of the most difficult issues you can face selling your RV yourself. If you have a loan against your RV with a lien against the title, you will not be able to get the title to transfer to the new owner until the lien is satisfied. That means you will need the money to pay off the loan before you can transfer clear title to the buyer. This can be a dilemma since many buyers will not give you the money until they receive the title. Unless you have enough cash available to payoff the loan in advance of receiving the buyer’s money, you will need to figure out how to handle this problem. Be sure to contact the lien holder before you get into a bind and avoid promises you can’t keep.
There are other issues to deal with when considering selling your RV yourself:
- Advertising – How will you let people know your RV is for sale? Can you expose it to enough potential buyers to get your price?
- Appointments & No-shows – Do you have the patience and the time to be available for showings?
- Trades – Will you take a trade? Can you find enough no-trade prospects?
- Financing – How will buyers get the funding to buy? Many buyers need financing.
- Strangers in your house or on your property – Do you want to expose yourself to the public?
- Handling incoming phone calls – How will you deal with phone calls from prospective buyers?
- Warranty – Do you plan on guaranteeing your RV? If you show the buyer that things are working are you promising they will and if so for how long?
- Unhappy buyer – What happens when a buyer is disappointed with your deal or your RV after the sale?
- Negotiating a deal – Are you comfortable negotiating as the seller?
- Insurance – What happens if the new buyer buys it and has an accident before title is officially transferred? Will you get stuck? What happens if a prospect trips, falls, or is injured in some way, Are you covered?
- Test drives – Will you give test drives? Will you check driver’s licenses before allowing the prospect to drive? Does your insurance cover you for test-drives?
- Time – do you have the time to wait for the right buyer at the right price to come along?
The bottom line is there is a lot more work required to sell your RV than just putting a “for sale” sign in the window. If you are up to the task – go for it and you can save significant money by doing the job yourself. If you’re not, remember trading your RV is saving you a great deal of time and effort. You may be getting top dollar after all.