Kelley Blue Book vs. NADA Guides
Kelley Blue Book got going when Les Kelley, a Los Angles-area auto dealer, realized that he could make money by selling information that he had kept for himself to run his burgeoning business — information on the current market value of used cars by make and model. In 1926, he and his family decided to publish the first Kelley Blue Book vehicle price guide and market it not to the general public, but to other car dealers, plus banks and insurance companies. The idea was to capture in print the current vehicle values in the market so that business people could leverage that knowledge in their dealings. NADA Guides, which came along less than a decade later, was the National Auto Dealers Association’s answer to Kelley Blue Book. As its name would suggest, the NADA Guides were not intended for consumer consumption but instead to help dealers do business with consumers.
Kelley Blue Book says that for most people, it is (somewhat ironically) the gold standard for vehicle values and value-pricing information. The “blue book value,” a term that is proprietary to Kelley Blue Book, has become almost synonymous with the notion of the real price of a particular vehicle. Kelley Blue Book’s business model changed radically in the 1990s when it transitioned from being a print publisher selling its guidebooks only to members of the auto industry and public libraries to an Internet publisher making its values available to the general buying public. At first, it attempted to sell the values to individual consumers, but it soon discovered that a better business model was to offer the information for free and sell advertising to those brands that wanted to reach car-buying consumers. That is essentially the brand’s business model today, though currently it is owned by the media conglomerate Cox Automotive.
The history of NADA Guides is in many ways similar to that of Kelley Blue Book. The guides were founded to answer an industry need, not a consumer need. NADA Guides information was typically kept within the dealer, finance, insurance, and government communities. During its early years, the effort relied heavily on data provided by car dealerships, but at the same time, the goal was to keep the pricing unbiased and accurate. An inaccurate guidebook, of course, is of little value. Almost from the start in the 1930s, vehicle manufacturers began encouraging dealers to provide sales figures and other data to NADA Used Car Guides. Soon thereafter it began making supplemental checks of data authenticity and solicited statisticians and economists to confirm the soundness of its analysis. And it leveraged its longtime affiliation with the National Auto Auction Association wholesale-pricing data.
So how does the Kelley Blue Book of today, an entity that provides value and pricing information to the industry and consumers alike, go about producing those values? And how do they ensure their validity? The answer is data — big data. Kelley Blue Book gathers, analyzes, and uses massive amounts of sales and pricing data, including actual retail transactions and actual wholesale auction transactions. Those are the ingredients from which the values are created but they are not the values themselves. Instead, Kelley Blue Book adjusts the values based on its own processes, many of them proprietary, to ensure that the values reflect local market conditions and seasonal trends. In other words, retail and wholesale transaction information is leavened with the brand’s multi-generational expertise at vehicle valuation. Pricing is updated at least weekly to reflect the market and give its users up-to-date pricing.
The consumer research firm J.D. Power, an international company that is a leader in providing vehicle data and information to both consumers and businesses, owns and operates NADA Guides. Its customers for this data include banks, credit unions, fleet and lease organizations, auto dealers, insurance companies, and government agencies. When NADA Guides constructs a vehicle's value, it draws info from a wide variety of data sources. These include actual wholesale transactions that represent about 80% of the market through its relationship with NAAA, plus retail (dealer-consumer) transactions through J.D. Power PIN data. It also analyzes asking price information from www.autotrader.com, which, ironically, is a sister brand to Kelley Blue Book. In addition to cars, SUVs, and trucks, NADA Guides offers third-party values for motorcycles, recreational vehicles, classic and special-interest cars, boats, and manufactured homes.
Kelley Blue Book says a lot of numbers and data intelligence goes into its proprietary valuation process. The brand uses predictive analytics and industry and field analysis to review trends and provide current, market-reflective information. It says it utilizes more than 250 data sources delivering 3.0 trillion data points in its effort to provide objective, data-driven information that inspires consumer confidence and peace of mind. NADA draws in giant amounts of data from automakers, wholesalers, and retailers of used vehicles. Among the most important data — the amounts for which they paid and sold their vehicles. NADA Guides then factors in supply and demand and other macro- and micro-economic factors and the competitive landscape of vehicles. And this is a particularly pointed and important reminder from NADA Guides: “Our values are designed and intended to assist users in performing their own valuation of a particular used vehicle.”
What is important to note is that the pricing guides are just that — guides. They are not price sheets with hard-and-fast "transactable" pricing information. They are designed to use real data to reflect the market so that individuals can reach an agreement on the price of a particular used car. Of course, the value of a used car is the amount of money one person will pay to purchase it. With this in mind, it should not seem unusual to you that Kelley Blue Book and NADAGuides.com might provide different valuations for a particular vehicle. As we have detailed, the procedures of the two brands differ. And more importantly, it is quite possible that even given the same data, two honest people will come to different conclusions based on a given set of facts. If you buy two guidebooks on Paris, both won’t tell you to dine at the exact same restaurants and visit the exact same places. What a guide is supposed to do is act as an aid so individuals can make their own decisions.