When you go to a used car dealership, have you wondered where the dealers get the cars and how much they pay for them? How much of what you are paying is just profit for the dealers? Like every other business, dealerships exist because they are a profitable business. However, how much dealerships pay for used cars varies depending on various factors.
The Car’s Popularity
It is no secret that some vehicles are more popular than others. Car buyers are drawn to specific brands and models because of fuel efficiency, resale value, engine power, comfort, and convenience. Dealers often prefer to look out for cars that they can sell quickly over those that will be in the lot for a long time. The downside is they pay more for cars that are highly sought after.
Some dealers pick cars that they think have the potential of being bought by clients looking for cheaper vehicles. Some people sell these cars to used car dealerships at low prices just to get rid of the car or else as trade-ins for the car they bought. Dealers may also sell these cars at a low price, albeit with an added profit.
The Age of the Car
Older models tend to cost less than the more recent ones. This applies to the final price at the dealership as well as to the price the dealers paid for them in first place. When looking at used cars, either at the auctions or dealerships, you will notice that the newer the model, the higher the price. This is primarily because the dealer also pays more for these cars.
Further Reading
- Do You Need an Auction License to Buy a Car?
- How to Save Up Money for a Car Dealer Auction
- I’m Buying My First Car in an Auction: What Should I Know?
- Everything You Need to Know About Insurance for Salvage Cars
The Condition of the Car
Even though you will find some vehicles in mint condition at the dealership, the dealer may not have bought it that way. Some dealers repair the cars before putting them up for sale. Dealers do not mind purchasing such cars because the profit margins are higher since they negotiated a much lower price to accommodate the cost of repairs.
The Size of the Dealership
Most dealerships buy cars at wholesale prices at dealer-only auctions. Large dealerships that have a large client base tend to get more cars. These dealerships can bargain for a lower price when compared to small dealerships that get few vehicles.
Some of the large dealerships are popular with used car buyers because of the condition of the cars. Clients are willing to pay more if they find most of the vehicles in the lot are in excellent condition. Smaller dealerships may not be able to stock such cars, or even carry out all the necessary repairs.
In the end, the large dealerships have higher profit margins since they buy the cars at a much lower price, but sell them at a rate that is acceptable by most of their clients, even though it could be higher than the smaller dealerships.
Dealers make a profit of between 25-45%. It is difficult to determine the exact mount dealers pay for the used cars. Most dealerships endeavor to sell the used cars within the market rate because buyers are more aware of the average price of the vehicles they are interested in buying.
If you would like to buy the car at the same price as dealers, you should consider buying a car from online auction sites like Auto Auction Mall. You will save the mark-up usually added by dealers to represent their profit.
How Much Do Dealers Pay at Auction and What is Their Markup?
2016 TOYOTA COROLLA LE
KBB Dealership price: $12,000
Auction Price: $4,099
Auction Price including all fees. Excludes shipping: $5,265
Dealer’s Markup, excluding repair costs: $6,735 (56%)
2009 NISSAN MURANO S
KBB Dealership price: $9,995
Auction Price: $2,200
Auction Price including all fees. Excludes shipping: $3,087
Dealer’s Markup, excluding repair costs: $6,908 (69%)
2016 RAM 1500 SLT
KBB Dealership price: $25,000
Auction Price: $14,600
Auction Price including all fees. Excludes shipping: $16,062
Dealer’s Markup, excluding repair costs: $8,938 (36%)
2007 TOYOTA 4RUNNER
KBB Dealership price: $10,500
Auction Price: $6,500
Auction including all fees. Excludes shipping: $7,842
Dealer’s Markup, excluding repair costs: $2,658 (25%)
NOTE: Dealership prices from Kelley Blue Book, Auto Auction Mall Prices based on clean-title buy-now options. All auction vehicles chosen for this comparison have superficial damage to the side or rear. Dealers will repair this damage or replace these panels to sell the car as used. For this comparison, we have chosen example auctions with the minimum amount of superficial damage to repair.
As you can see, Dealers’ markup ranges between 25% and 70%. There is a cost associated with fixed dented panels, and respraying, though these costs to established dealers are much lower than for most members of the public. If their dealership includes a body shop, they may be able to make these repairs themselves for negligible cost.
If you’re simply looking for a cheap runaround, then scratches and small superficial damage may not even need repairing at all. Even with replacing panels at a reputable bodyshop, you’re still looking at saving thousands of dollars on a used car.
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