whether it's fair or not, you need to look from the dealer's perspective: they can get the car from the individual (as a trade in) or from the auction. since everyone nowadays wants to buy a new car at or below invoice, dealers can only offer wholesale for the trade ins. especialy in the era of the internet and all those wanna-be-delaers with nothing more than a car dealer's license and a few
ebay listings.
you say dealer shouldn't pay wholesale for the trade in, yet you want them to base their (used car) prices on the wholesale value. how fair is that?
IMO trade in value is kind of obsolete term nowadays. it should be wholesale-private-retail.