Join Date: Dec 2001
Location: Belleville, Illinois
Thanked 22 Times in 17 Posts
Re: how do dealerships price vehicles ? ? 05 Rubi
Unless things have changed in the last 30 years, (they haven't) it's more or less arbitrary. Actually, it's very simple. They get it as cheaply as they can, and sell it for as much as they can. In the end, there is not necessarily any relationship between the two prices, although the sales manager will dig in very hard to avoid taking less than some minimum profit.
Sometimes they make a mistake and put more into a used vehicle than they can sell it for. Sooner or later they'll sell it though, even if it means taking a real loss. Doesn't happen often.
Sometimes they hit a home run; buy a vehicle very cheap from someone who doesn't know its value, and wind up selling it for more than it should be worth to someone else who doesn't know its real value. That happens much more frequently.
And when I say "buy a vehicle", it doesn't matter whether it's a trade in, bought at auction, from another dealer, or from an individual who comes in off the street. When they put it in their inventory it has a dollar amount that is what they have in it.
The interesting thing about the used car business is that there is a huge amount of profit in it, compared to the new car business. Thirty years ago, when the fanciest, full-size Pontiac Grand Ville was a $5500 piece, we would take $100 gross profit on them all day long. But the target for any decent used car would be $1000 gross.
The reason is simple; A prospect could drive fifteen miles to the next dealership (or get on the net today) and price exactly the same new car. But any used car on the lot is a unique piece. There isn't another one in the world EXACTLY like it, and nobody outside of the store knows how much its on the books for. That gives a salesman two invaluable points to work with, and that pushes the profit margin up.
In the end, the only way to get a good deal on a used car is to shop all over, gather information on a bunch of similar vehicles, and don't let yourself get stuck on a particular one. You have to be prepared to walk away and let someone else buy it. The longer it sits on the lot, the less they'll take for it, but of course, the odds increase that someone else is going to buy it instead of you.