The Truth About Used Car Prices

• July
• 30

4:51 am cars

Before you buy a used car from a car dealer, you should understand a little about pricing. A franchise dealer with a used car operation will usually price his cars at a certain percentage more thanwhat the car is deemed to be worth on the wholesale market.

The wholesale value of a car is usually determined by factors such as the demand for the car coupled with the age, make, model, options, mileage and general condition. The dealer’s markup on a used cars, van or pickup is frequently determined by any or all of several factors.

* The price the dealer paid to acquire the car. He might have taken it in trade against a new car — which means that he accepted the car in lieu of cash or he might have purchased it from a private seller, a wholesaler or bought it at auction.

* The dealer adds what it has cost him to repair and recondition the car.

* The dealeradds a markup to cover his profit objectives and to pay for his overhead.

The markup will also reflect such things as the condition of the car, the mileage, the make & model, options and most important, the market demand. The point, simply, is that used car markups will vary greatly for any number of factors. Your objective is to discover what has it cost him to buy and recondition the car and put it on his lot. That will give you the basis for planning your negotiation.

Negotiating tricks

Many dealers will also include a “negotiation pad” in their markups. They recognize that most people won’t buy a car — new or used — unless they feel they’re buying it for less than the advertised price. So a dealer will build in a large enough cushion to give the buyer a discount and still end up with whatever he considers to be a reasonable, or maybe even a more than reasonable, profit.
Insider information on pricing

The key to a dealer’s survival and profitability in the used car business is to buy used cars at or below what the industry calls the “wholesale price” and then to sell them at a retail price that, in the final analysis, is whatever a buyer will pay. Here is an actual example:

I tracked a GM car that was purchased by a dealer for $9,500. After spending $400 for repairs and reconditioning, he put it on the lot at $13,800. That’s a markup over his purchase cost of more than 45 percent!

The used car sales manager confided that this markup gave him built-in room for negotiation. A buyer finally appeared, and after a negotiated agreement, bought the car for $12,450. The customer felt he’d gotten a deal and the seller said nothing to disabuse him of that notion.