How Much Do Dealers Pay For Used Cars At Auction
Information technology'due south an age onetime question … How much practise dealers pay for used cars? Equally if buying a car wasn't catchy enough, the used car market is somehow fifty-fifty more mysterious and unknown than its new car sibling. Equally I always similar to say, "no 2 used cars are the same," and for that very reason, pricing for used cars is nearly e'er a crapshoot.
Unlike new vehicles, used cars don't have a Manufacturer'due south Suggested Retail Cost (MSRP), nor a Monroney label that tells you exactly how much each component of the vehicle costs (or at least should cost). No, when you lot buy a used machine, the price is generally gear up by a calculator algorithm that looks at what other dealers have listed similar used cars for auction, and and then suggests an amount to the dealer.
Like I've talked nearly in the past, every bit a general dominion of thumb, dealers mark upward their used car inventory a few m dollars over their price. This is far from a hard and fast rule all the same, as some used cars accept been known to net dealers five figures (or more) in profit.
Today I want to focus on a technique you can use to estimate a dealer's cost to own a particular used car. In the video above we walk through three examples of actual used cars that are on dealers lots. I highly recommend you lot sentry the video to meet how nosotros become through each step of the procedure.
Permit's dive in!
How do machine dealers source used car inventory?
Before we get too into the weeds on how much dealers pay for used cars, I want to have a moment to share with you the iv ways car dealers source their used car inventory. Past this point you are familiar with the concept of a Used Car Manager. This is the staff member who is responsible for all used machine sales at a dealership. They'll source their inventory from four places:
- Customer merchandise-in
- Wholesale auctions
- Direct from wholesalers
- Trades with other dealers
The 2 primary sources are customer trade-ins and wholesale dealer auctions. Some dealers also become used cars directly from wholesalers, and occasionally dealerships take been known to "swap" aging units from one shop to another to run into if the other dealer has better luck selling the car.
For our purposes we'll be focusing on estimating how much dealers pay for used cars from trade-in and auctions, since those are the two highest book sources of inventory.
What are dealer costs for used cars?
There are certain costs associated with preparing a used vehicle for sale, aka getting it "retail set." Some costs are simply associated with used vehicles purchased at sale, and don't employ to merchandise-ins, but other costs are fixed, regardless of where they were sourced.
Land inspection fee
Every vehicle a dealer sells must laissez passer the state's vehicle worthiness inspection. Fees associated with this inspection are non negotiable and differ from state to state. You lot tin await up what a land inspection costs in your state to get an idea of what it costs a dealer, simply on average we can say it'south around $80 per vehicle.
Reconditioning fee
Every used vehicle incurs some sort of reconditioning. Reconditioning is manufacture jargon for repairs and maintenance. About all dealerships perform some blazon of reconditioning considering it allows them to sell the vehicle at a college price than if they sold it entirely "equally is." Dealers also like reconditioning their vehicles, because they are able to increase their revenues. What do I mean?
Well, the Service and Parts departments number i client is the Used Automobile Sales department. Everytime a new used automobile comes in, the Used Automobile department sends it over to the service department for inspection and reconditioning. Whatever parts they need to replace, or maintenance that needs to be done is billed to the Used Car section (or the manufacturer if the vehicle is under warranty).
Do you see information technology? Dealers honey to become used vehicles "retail set up" because it allows them to increment the amount of revenue they produce.
As a circular number you can estimate with, a dealer will spend $i,500 (and sometimes a lot more, especially if it'south a more expensive brand, or a certified pre-owned unit) to recondition a used vehicle.
If you're thinking about buying a used car, you might enjoy this article if you oasis't read it already: How Nosotros Negotiate a Car Deal by Email (with Real Life Examples, Templates, and More!)
Detail fee
Dealers also must pay for a full item of a used car earlier selling it. This typically is billed at $100 (or more) for a used motorcar.
Auction fee
As the name suggests, this fee is associated with vehicles purchased at dealer auctions. Although each auction business firm charges a dissimilar price, a general rule of thumb is that a used auto costs effectually $400 to purchase from an auction.
Transportation fee
Some other auction specific fee, if a dealer buys a car in Salem, PA, and their dealership is in Baltimore, Doctor, they need to pay to get the vehicle dorsum to their storefront. As an estimate we can say this $200 per car, but evidently this corporeality tin and volition change depending on the number of vehicles being shipped, their size, and the distance travelled.
How Much Practice Dealers Pay for Used Cars? – Toyota Camry
Let's walk through an case of how you tin calculate an estimate as to how much a dealer paid for a used car. We'll utilize this 2017 Toyota Camry LE listed for $xv,995 to outset. Get ready, y'all're near to take a much better understanding of how much dealer pay for used cars.
The commencement thing you'll want to do is locate the Kelley Blue Book trade-in value. Just become to KBB.com, enter the vehicle information, and identify the low-end number they show.
In this case you lot can meet the value is $12,791.00. Now, that's non the actual price the dealer paid to become this car. If they sourced this machine via a merchandise-in information technology's likely they offered $12,000, or maybe $12,200 ($500 to $700 below KBB). If the dealer bought it at sale it'due south likely it was 10% less than the KBB suggested value, so more like $eleven,511.90.
If the dealer bought this machine at auction for $11,511.90, they so incurred $400 in sale fees, and $200 to send it to their dealership. Add together in $lxxx for the country inspection, and a conservative $ane,500 in reconditioning piece of work, plus $100 for the detail.
We're up to $13,791.xc in cost for the dealer.
At that place is then one other factor we need to consider, which is called protected against committee (PAC). PAC is profit congenital into every car deal that is not commissionable to a salesperson. Dealers add together in at least $500 in PAC on used cars, some more than. This goes towards paying for non revenue producing employees.
At present we are up to $14,291.90 in price for this Camry LE that is listed for auction at $15,995.
If the vehicle was traded-in rather than bought at auction nosotros tin estimate that the dealer paid $14,971.00 to get information technology retail gear up. As you lot tin can see, not a lot of margin is congenital into this price.
Considering the KBB fair purchase cost of $xv,006.00, yous can start to see why this vehicle may only have $500 in "wiggle room" from the dealer perspective.
How Much Exercise Dealers Pay for Used Cars? – Mercedes- Benz E400
For our next case allow's look at a more expensive vehicle, a Mercedes-Benz E400 Coupe.
Equally you tin can meet, the list toll is $30,495, and the KBB trade-in value is $24,802.00. That'southward already a much larger gap in price than the Camry.
If we add upward all our fees, and increase our reconditioning to $ii,500 (because after all, all things Mercedes are a bit more than expensive), we stop upward with an sale price of $26,101.80, and a trade-in cost of $27,982.00.
The KBB fair purchase cost is listed at $28,938.00, which means that at the list price of $30,495, we can feel fairly confident that the dealer is making a very skillful turn a profit on this vehicle.
As you can see this method for estimating how much dealers pay for used cars can be helpful in understanding if you are getting a fair deal or non. When it comes to used cars and knowing how much you lot should offering information technology can exist very disruptive and mysterious. Our promise is that now yous feel more than comfortable estimating how much dealers pay for their used car inventory.
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How Much Do Dealers Pay For Used Cars At Auction,
Source: https://joinyaa.com/guides/how-much-do-dealers-pay-for-used-cars/
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