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How Kelley Blue Book Values Used Cars

Lyndon Bell
by Lyndon Bell
April 15, 2011

One of the first pieces of advice anyone researching the process of buying a used car usually runs across is to check the 'Blue Book' to get an idea of a fair price for the car. Similarly, anyone selling a car gets the same advice. The oldest respected authority when it comes to valuating automobiles, the Kelley Blue Book story goes all the way back to 1918 when Les Kelley started the Kelley Kar Company, with three rebuilt Model T Fords and $450 in cash.

After being in business for a while, Kelley began creating a list of used vehicles and the amount of money he was willing to pay for them. Soon, other auto dealers and banks trusted his judgment so much they started requesting Kelley's list for their own use. Recognizing the opportunity, the Kelley Blue Book Official Guide was born. Kelley named the publication Blue Book after the Social Register, because it meant one would find valuable information inside.

For many years, the Blue Book was an industry-only publication, not readily available to the general public. While the first consumer edition of the Book was published in 1993, the proliferation of the Internet made Kelley's pricing data universally accessible. Today, Kelley Blue Book's Web site, KBB.com, is one of the most visited automotive sites on the Web.

Cars, unlike other similarly expensive items, change over the course of their lifetimes. However, the degree of change depends largely upon how the car is cared for over its lifetime. To establish the current market value of a given automobile, the Kelley Blue Book company evaluates sales and pricing data received from wholesale auctions, independent dealers, franchised dealers, rental and fleet sales, original equipment manufacturers, financial institutions that lease cars, and private party transactions.

The process they use to crunch all those numbers is a trade secret, however one needn't be a mathematician to see how continually analyzing prices from all of those key transaction venues can give somebody a pretty good idea of the value of a given automobile.

There's more to it than that though. The company also looks at how the pricing of a given model has trended over time'”to predict how it will perform going into the future. Another key consideration is the current economic climate. As this is being written, the country is experiencing an economic recalibration precipitated by a rather significant recession. Because of this, more buyers are looking to purchase used cars to save money. This is driving the prices of used cars higher. Another factor is industry developments. The recent earthquake, tsunami and nuclear crisis in Japan have had a negative impact on production in that country. This will limit the supply of Japanese-made cars and thus we can expect to see prices for them climbing in the near future. Other factors include seasonal changes and geographic location. For example, convertibles sell for less in cold months, as well as in places where they can't be enjoyed frequently.

Perusing the guide, you'll note pricing is broken up into three main categories. The private party value is based on what cars typically go for when sold between two individuals. The trade-in value is what a private party can expect a dealer to offer for a car when it is presented as a trade-in. This price takes into consideration the dealer will need to resell the car for a price pretty close to the private party value and so leaves room for the dealer to add profit into the resale price. The suggested retail value is what you can expect to find on the window sticker at a dealer's lot. This price takes into consideration the negotiations between the buyer and the dealer before a final sales price is agreed upon.

One of the most trusted sources of used car pricing in the industry, asking the fair price for a used car has today become synonymous with Kelley's creation. Buyers and sellers all over the country, at some point have asked; 'What's the Blue Book on that car?'


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