Buyer Tips

How Much do Dealerships Pay for Used Cars?

By Mike Richards Updated: 10/15/2019 Posted: 09/13/2019

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.

used cars

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

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.

Car Auctions Near Me

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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