How Kelley Blue Book Works

­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.

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