Kelley Blue Book vs. NADA Guides

Les Kelley, a Los Angeles-area auto dealer, was in the business of knowing what vehicles were worth. It is how his successful dealership made much of its money. Always looking for a good business idea, Kelley realized that he could make money by selling the pricing information
that he had previously kept for himself to run his burgeoning business. In 1926, he and his family decided to publish the first Kelley Blue Book vehicle price guide. But he didn't intend for the information to be made available to consumers. Instead, he marketed his Kelley Blue Book Used Car Price Guide 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 either but instead to help dealers do business with consumers.

Changing Business Models

From that start as business-to-business publications almost 100 years ago, the two price guidebooks — Kelley Blue Book and NADA Guides — grew to prominence. Each book had — and still has —  its adherents and detractors. What no one denies is that price guidance in the buying and selling of cars is valuable and, in many ways, necessary for successful commerce.

"When it comes time to purchase a used vehicle, consumers want to ensure they are getting the best price possible on the car they want," Janice Yoell, Kelley Blue Book's senior manager of valuation, told us. "Third-party values provide a neutral, unbiased platform to assist with a consumer's buying and selling experience for their desired vehicle and unique market area."

Of course, that wouldn't be of much use if the figures were kept behind the closed doors of car dealerships, banks, and finance institutions. But about 25 years ago, the guidebook business — and the entire auto industry — changed radically on the whim of one man...

In the 1990s, a member of the Kelley family persuaded the rest to experiment by putting used vehicle values online for the public to see. At first, the still-small company 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 brands that wanted to reach car-buying consumers who wanted the price information. That is essentially the Kelley Blue Book's business model today, though currently it is owned by the 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. NADA Guides is now owned by global consumer research firm J.D. Power, which leverages many of its information sources to inform NADA Guides' valuations.

Similarities Between the Guidebooks

There are numerous similarities between NADA Guides and Kelley Blue Book. Both rely on a wide variety of information sources to gather the raw data. And both use very sophisticated analytic tools to turn the raw data into usable pricing information. So how do Kelley Blue Book and NADA Guides, who provide 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. Both organizations gather, analyze, and leverage massive amounts of sales and pricing data, including actual retail transactions and wholesale auction transactions. Those are the ingredients from which the values are created, but they are not the values themselves.

Here is how KBB's Janice Yoell describes her company's process: "We analyze more than 100,000 auction transactions each week, representing over 60% of all auction transactions occurring across the U.S.," she said. "This insight, coupled with detailed auction transactions allows dealers to make confident buying decisions and truly sets the Kelley Blue Book Value proposition as the gold standard compared to other used car pricing guides." 

Broadly spesking, the process NADA Guides uses is very similar to that of Kelley Blue Book. 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.

Different Specific Processes

Where the two major price guidebooks differ is in the specifics of their individual processes. And neither company is willing to go deeply into the specifics because those are proprietary, just like the formula for Coca-Cola.

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. 

Yoell said her company "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. The most important data, of course, are the individual amounts for which dealers bought 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. At the same
time, the pricing numbers provided to consumers and the industry are meant as guides. They are not intended to be "penny perfect."

"Our values are designed and intended to assist users in performing their own valuation of a particular used vehicle," said a spokesperson for NADA Guides.

Regionality Makes a Difference

In a market as big and diverse as the United States, regional tastes and local conditions mean that vehicle values must be viewed area-by-area. This adds yet another wrinkle to the difficult job of defining and predicting vehicle values.

How does KBB derive its regional values? 

"Kelley Blue Book understands the importance of providing pricing that is geographically relevant to dealers and consumers," Yoell said. "In order to better meet the needs of the industry, we produce values based on 134 geographic regions. Each region is analyzed individually to reflect local pricing and local economic conditions."

What is important to note is that the pricing guides are just that — guides. They are not price sheets meant to be followed with slavish devotion. They are designed to use real data to reflect the market so that individuals can reach an agreement on the price of a particular car. 

Why the Guidebooks Don't Always Agree

Of course, the value of any car is the amount of money one person will pay to purchase it. With this in mind, the fact that Kelley Blue Book and NADA Guides often provide different valuations for a particular vehicle should come as no surprise. 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 to Paris, both won't tell you to dine at the exact same restaurants and visit the exact same places. A guide is, by definition, an aid to help individuals make their own decisions. And that is exactly what Kelley Blue Book and NADA Guides do in the context of the automotive sales environment.