Also remember that it depends on how they work the numbers. I'm not saying the Tennessee dealer was giving a bad deal, since I don't know the specifics, but it is possible that they inflated the trade-in price by using some of the margin from the car he was trading for. For example, many new cars MSRP for anywhere between $1000 to several thousand above "dealer invoice." If there are any factory-to-consumer rebates or especially any "factory-to-dealer" incentives in effect, then it's even easier to "over allow" on the trade and for the dealer to still make money. If it is a used car your friend is looking at, it is not unlikely that the margin between sales price and "invoice" price is several thousand... even if it is "discounted" below blue/black/NADA book retail value.
To answer your question, I recently sold my MP3 with a Mazda Certified warranty (38k miles) for well under $11k. If I were a dealer, I'm sure I could have sold it for between $11-$12k. I had two dealers willing to give me $10k and one willing to give me $10,500 -- but all of them would have gone down another $1k on their used car if I hadn't been trading in.
Of course, depending on your state's vehicle sales tax rate, trading in can save you a lot of money in taxes, so it's best to work numbers both ways. In the deals I mentioned above, I actually would have saved over $600 in taxes -- meaning that selling to a private party for $11k would only have saved me about $400 -- so then, I had to decided if it was really worth the "hassle." In my case, it worked out well... I gave the buyer one heckuva deal, but in the end, I felt like it was a win-win situation.
