Frightening Trade-In Values

Recently, I was tempted by a motorcycle I spotted for sale at a dealership. Having taken a good look around my potential purchase, I asked for a trade-in value for my Ducati. The number they quoted was so far from the typical selling price that I needed a mug of strong tea to recover from the shock.

I had all of the usual thoughts. You must be joking. What planet are you from? And for the briefest of moments … Thieving bastards.

Having recovered from the shock and walked away from any possible deal, I started wondering why the trade-in price had been so low.

This is how I ended up on a tour of numerous motorcycle dealers, taking note of how they interact with potential customers and digging into the dark art of trade-ins and used motorcycle sales.

Dealership Experiences

Largely, dealerships seem to fall into one of two categories: Personal and Functional.

The personal approach is my favourite. This is where you get to talk to someone who rides a motorcycle. Typically, they have been in the industry for long enough to know the difference between a genuine enquiry and someone trying to offload a lemon.

Interactions are more conversational than a sales pitch designed to close the deal. Dealers appeared to know much more about the motorcycle, where it had been and how they came to have it for sale rather than my potential purchase being just another bike to be sold to another punter.

The functional approach is my least favourite. Whereas warehouse-style dealerships often have the widest choice of used motorcycles, the primary objective is to turn over motorcycles quickly, the key to which is their buying process.

Their approach is to drive the trade-in value as low as possible by upselling you on things like not having to deal with tyre kickers and how fast they can have the cash in your bank account. Every tiny thing that can reduce the trade-in value of your motorcycle will be highlighted and used to take a few more quid off the trade-in price.

And then there are dealers that surprise you. I was recently in Completely Motorbikes in Hinkley, which, at face value, should be a functional dealership experience.

But I was offered free tea and doughnuts, invited to sit on any of the bikes I wanted to and try them for size. The bikes with movement alarms were all marked. There was no hassle. Browsing was encouraged, resulting in a relaxed and hospitable dealer experience.

As to which approach works best for selling motorcycles, I’ve no idea, and if you are interested in the bike they have for sale, does it matter?

Having endured annoying sales techniques, I’ve walked away from more than one potential purchase. Conversely, I’ve bought more than a few motorcycles from Chris Walkers’ Dealership because they made parting with my money a pleasurable experience.

The Bit In The Middle

Between trading in your motorcycle and its arrival on the dealership sales floor is a mystical process called “preparation”, sometimes whimsically referred to as “running it through the workshop”.

I’m never sure what this means, and looking at the trade-in motorcycles for sale at several dealerships, there isn’t a standard answer.

The worst of the dealership horror stories involve motorcycles being washed in highly aggressive cleaners, having some oil slapped on the chain, and the bike offered for sale at a fixed markup.

At the other end of the scale, I’ve been looking at motorcycles that have been fully serviced, cleaned and polished – yes, polished – before being offered for sale.

However, the dealer making good on normal wear and tear was universally excluded from the bit in the middle.

A heavily worn tyre might be replaced, and depending on the dealership experience, I might have been able to negotiate a replacement chain and sprockets in the deal if they are obviously worn.

However, dealers are not typically in the business of restoring motorcycles. If the bike is road-worthy and everything is functional, then you are buying a used motorcycle and are to expect the wear and tear associated with the mileage.

Talking with one of the salespeople at a warehouse dealership, I pointed out a couple of items on a motorcycle I was interested in. “Why do you think the price is so competitive (low)?” was their response. Fair point.

I recently refreshed my Multistrada, and my chances of recouping my investment would be doubtful if I sold the bike. The same is true for dealers. If they overhauled trade-in motorcycles before selling them, we would never pay the higher asking price. Conversely, we’d scoff at the even lower trade-in values they offered us.

Low Trade-In Values

Getting into the financial side of trade-in values and dealership overheads was eye-opening.

VAT, for example, has to be paid by dealers on the profit they make from a sale. But I hear you saying there isn’t any VAT on second-hand items … well, not quite.

It is widely referred to as the Margin Scheme, and it applies to more than just motorcycles. However, assuming the dealer is VAT registered, they pay one-sixth of the profit on the sale of a used bike to the government as VAT.

Typically, your invoice doesn’t show this because you are not paying the VAT. It is the dealer that has to account for it.

And if you have the same thought as I did – don’t register for VAT – registration is compulsory if your turnover exceeds £85K per year. Thankfully, this also means it doesn’t apply to private sellers, and normally, we are selling for less than we bought, not making a profit.

Assuming an average price of £5K per motorcycle would require that just 17 motorcycles are sold in a year before the dealer needs to register. An active dealership will hit the £85K VAT threshold without much effort.

Overheads

Suppose I was offered £5,000 for a trade-in that the dealer would advertise for £7,500. From the £2,500 profit, £416 goes directly to the Government in VAT.

But that still means the dealer made £2,000, which sounds like a decent profit. Well, perhaps not as good as it first appears.

Dealers have showrooms, run internet adverts and pay their staff salaries, even in dealerships where they are heavily commission-focused. These overheads run all year round, not just for the sunny months when the interest in buying motorcycles is highest.

I’ve no idea how much business rates are or what the costs are for gas and electricity for commercial premises, but a local butcher near me closed down recently after 120 years in business, stating that the overheads of rates and electricity were running at over £2,000 per month.

The minimum wage is roughly £400 per week or £1600 per month. Assuming two people work in the dealership, even if one is the owner, the monthly salary bill is roughly £3,500 per month by the time the National Insurance calculations are factored in.

The Cost Of Money

Regardless of how the dealership funds their trade-in purchases, there is a cost to the money. If the money hadn’t been used to buy trade-in motorcycles, it could be in a bank earning interest.

If I was given £5,000 for my motorcycle, the same money could earn the dealer £150 if it was in a bank for a year, earning 3% interest. Worse still, if the dealer has borrowed the money from the bank to fund the trade-in, they are likely paying 8% or more – £400 for a year.

Trade-in your motorcycle in October, and the dealer will likely have it in the showroom for six months, so from the profits comes another £200 to account for the cost of money.

My Imaginary Dealership

If I put all of those costs together and assume that I have 20 trade-in motorcycles in my dealership, each costing £5,000, then my cost to sell them between October and April of the following year would be: