Introduction to How the Kelley Blue Book Works

­Since its humble beginnings 75 years ago, the K­elley company has worked to bring value information for cars, recreational vehicles and motorcycles to buyers and sellers. Its Kelley Blue Book has become the standard automotive price guide for dealers and consumers alike. Now Kelley is using the Internet to make that information even more readily available. In this article, we'll explore Kelley's history, show you how to use its price guides and Web site, and explain where it gets pricing information.

­L­es Kelley never intended to start a publishing company. He began in 1918 by selling used cars, starting with three Model T Fords in a Los Angeles parking lot. With the help of his younger brother, Buster, Kelley turned his small lot into a thriving used car sales and repair business within a few years. Kelley began printing lists of used cars that he wanted to buy, including how much he would pay for them. He sent these lists to other dealers and banks. Before long, Kelley's lists were on the desk of every sales manager in the county and people came to rely on them for accurate appraisals of an old car's value. In 1926, Kelley published his list in book form for the first time. He named it after the Social Register, a list of the important and elite people in local society often referred to as the Blue Book.

Les Kelley creator of Kelley Blue Book

Photo courtesy Kelley Blue Book

­The Kelley dealership­ continued to expand until it was the largest used car dealer in the country. The Blue Book increased in popularity as well, moving beyond its regional boundaries and becoming a nationwide car value guide for dealers. In 1962, the Kelley family sold off their dealerships and focused entirely on the Blue Book.

In the 1980s and 90s, Kelley started using computer software to track prices. In 1992, it offered dealers a computer program that allowed them to print out a label displaying the condition, mileage, and optional equipment on a used car. The label also included the Blue Book price and the Kelley Blue Book official seal. In 1993, the Blue Book was finally released as a consumer guide. The last major change in publication format came in 1995, when www.kbb.com was created.

Kelley Blue Book stayed in the Kelley family for three generations until 2000. That year, Bob Kelley (Buster's son) and his son Mike retired from the company, leaving it in the hands of new leaders who kept the famous name and worked hard to maintain the tradition of trustworthy and accurate information. Today Kelley employs around 200 people and has offices in Irvine, California and Detroit, Michigan.

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The very first Kelley Blue Book, published in 1926

Photo courtesy Kelley Blue Book

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Evolution of the Blue Book

­When Kelley first published its Blue Book in 1926­, it was simply a price guide with a basic list of cars and prices. Today, Kelley offers guides for new cars, used cars, older cars dating back to the 1940s, as well as motorcycles and recreational vehicles like motor homes and camping trailers. Much of this information is available free from the Kelley Blue Book Web site.

Kelley only offers information on cars sold in the United States, so the same model of car sold in Canada might have some key differences that would alter the value. Kelley can still be used as a guide when a used car is sold in another country, but it does not account for regional market differences.

Most people are familiar with the consumer editions of the New Car and Used Car Guides, which can be purchased in almost any book store. These guides are published twice a year.

The Kelley Blue Book New Car Guide contains pricing information on cars for the current model year, including:

  • MSRP (Manufacturer's Suggested Retail Price)
  • the dealer's cost
  • any extra costs that may be involved, such as shipping the car
  • pricing schedules for various options that buyers can select

The Blue Book Used Car Guide contains information on the values of cars made in the last 15 years. This guide offers several different prices:

  • retail price - what you would expect to pay for this car at a used car dealership
  • trade-in price - what a dealer would offer you in trade value
  • private sale price - the price you could expect to get for this car if you sold it yourself to another person

The Used Car Guide offers charts and tables to calculate the price based on the condition of the car, the mileage, and optional components. It also describes how those factors influence the overall value of the car. Information on older used cars is presented in a separate book, while motorcycle and RV information is published separately as well. That information is only available in the guidebooks -- not on the Kelley Web site.

Using the books is easy. The cars are listed by manufacturer, then alphabetically by model. If you wanted to look up a Ford Explorer, you'd first go to the Ford section, then thumb through the "E"s until you found "Explorer." The book includes a "How to use this book" section that explains optional equipment and mileage.

Next, we'll take a tour of the Kelley Blue Book Web site.

Using Kelley Blue Book Online: Car Selection

­Since its launch in 1995, the Kelley Blue Book Web site has become one of the most visited sites on the Internet. At first, visitors had to pay a fee to find car val­ue information on the site, but that lasted only a few weeks. Now information on new and used cars (which currently goes back 20 years) is free. The Web site is even easier to use than the guides are.

For new cars, click the "New Car" tab and select the manufacturer and model you're looking for. Then choose the year. (Since these are new cars, it will be the most recent model year, although the two most recent years might be available if the new models just came out.) If different versions of the car are available, choose the version that you want. For example, a car may be available as 4-door or 2-door, or there may be a special edition. The Web site then shows you the MSRP, the dealer invoice price, and the "Blue Book Price" that represents actual prices people are paying for the car nationwide. If you put in your zip code, you'll also get a list of nearby dealers that have the car for sale.

Searching for the value of a used car has a few more steps, but it's still very simple. Suppose we're interested in selling a 1996 Pontiac Grand Am to a private party.

First, we'll click on the "Used Cars" tab. Then, under "Get Blue Book Values," we'll select the year, make and model of the car from the drop-down menus.

We want to price a 1996 Pontiac Grand Am.

In the next section, we'll look at choosing the type of car value and sorting by the car's features.

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We want to find out the private party value.

Using Kelley Blue Book Online: Value Type and Features

At the next page, we're given a choice of the kind of value we want to see: trade-in, private party, or retail.

On the next page, we'll select the version of the car that we're looking to sell.

Our Pontiac is a 2-door SE Coupe.

Next, we'll select the engine and transmission, and enter the mileage. We will also need to enter the zip code of the area where we plan to sell the car. Regional market differences can shift the car's value, so the zip code is important.

Our Pontiac is an automatic 4-cylinder with around 60,000 miles on it.

On this page, we can also select the different options that have been installed on the car. These only include factory-approved or factory-quality optional equipment. If the car has additional equipment installed by the owner, Kelley may not include it. This equipment will also affect the car's value, though.

If the car had equipment that doesn't work, we can check that option. In this case, we should also deduct the cost of repairs from the value. For example, if the car had air-conditioning that didn't work, we would check off air-conditioning, but subtract $50 to $100 or more for the cost of repairs.

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We could expect to get around $2,500 for this car if we sell it within our zip code.

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Using Kelley Blue Book Online: Vehicle Condition

­ ­We must also choose the condition of the car. Kelley Blue Book divides the condition of used vehicles into four grades. You can determine the condition of a vehicle by taking a "condition quiz" found on the equipment selection page, or by comparing the car to these category definitions:

  • Excellent condition means that the vehicle looks new, is in excellent mechanical condition and needs no reconditioning. This vehicle has never had any paint or body work and is free of rust. The vehicle has a clean Title History and will pass a smog and safety inspection. The engine compartment is clean, with no fluid leaks and is free of any wear or visible defects. The vehicle also has complete and verifiable service records. Less than 5 percent of all used vehicles fall into this category.
  • Good condition means that the vehicle is free of any major defects. This vehicle has a clean Title History, the paint, body and interior have only minor (if any) blemishes, and there are no major mechanical problems. There should be little or no rust on this vehicle. The tires match and have substantial tread wear left. A "good" vehicle will need some reconditioning to be sold at retail. Most consumer owned vehicles fall into this category.
  • Fair condition means that the vehicle has some mechanical or cosmetic defects and needs servicing but is still in reasonable running condition. This vehicle has a clean Title History, the paint, body and/or interior need work performed by a professional. The tires may need to be replaced. There may be some repairable rust damage.
  • Poor condition means that the vehicle has severe mechanical and/or cosmetic defects and is in poor running condition. The vehicle may have problems that cannot be readily fixed such as a damaged frame or a rusted-through body. A vehicle with a branded title (salvage, flood, etc.) or unsubstantiated mileage is considered "poor." A vehicle in poor condition may require an independent appraisal to determine its value.

Now we can click on "Get Report" to receive the Blue Book private party value.

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Price Tracking

­It isn't ­very difficult for Kelley to find the MSRP and dealer invoice prices for new cars. Although dealerships don't publicize their invoice prices, Kelley has relationships with manufacturers. The Blue Book value is another matter. Employees in Kelley's Data Collection division gather information from thousands of transactions at dealerships across the United States, analyze the data, and come up with a price that reflects the actual price that people pay when they buy their cars at a dealership.

Kelley Blue Book doesn't provide a similar value for used cars, because there is no practical way to track used car sales. Many of these sales are between private individuals, so Kelley has no way of knowing actual selling prices. In this case, Kelley Blue Book applies its 75 years of car appraisal experience to determine prices. It starts with the value of the car when it was new and takes into account market forces that are in play at the time.

Cars with good fuel efficiency are in demand right now, so they might fetch higher prices. The depreciation of a car's value is calculated based on previous model years, the quality of the car and the number of cars on the used car market. Common cars that were bought in bulk for rental company fleets command lower prices because the used car market is virtually flooded with them. High-quality cars, or cars that were made in limited quantities, receive a higher value. Cars known to have long-term mechanical problems will depreciate to a greater extent. Optional equipment, mileage, and the overall condition of the car will also affect the price.

Kelley's retail price for used cars takes into account the dealer's cost to refurbish the car and make any repairs and general dealer overhead (such as paying salespeople, paying for advertising and keeping cars in inventory). The retail cost is higher than the private cost, since in a private sale you would sell the car as-is or take care of those things yourself. The trade-in value is lower for the same reason -- the dealer has to turn a profit after paying for those overhead costs.

Are the Kelley values rock-solid? They are a good starting point and a good way to make sure that you aren't ripped off, but many variables can affect a car's value. If you have the only light blue 1998 Pontiac Grand Am for sale in the state, and someone really wants that specific car and color, you can probably get a better price than the Blue Book value. If a large number of similar vehicles are put up for sale in your area at the same time, prices will generally be lower than Blue Book. Although these variables are countless, they all follow the law of supply and demand -- the more people want something, and the fewer there are to buy, the more they'll be willing to pay for it.

For more information on car price guides and related topics, check out the links on the next page.