Dealership pricing- wholesale vs. retail. Any car dealers and/ or salesmen out there?

Anybody have experience with used car dealership pricing? Ever been to a dealer car auction?

I am trying to understand some very basic pricing and/or markups over wholesale purchase price.

My sense is that the dealer selling model that is most prevalent is basically, "Sell for as much as we can". But I am curious if there are any general markups that can be assumed.

For example, a used car sitting on a lot for $10K. Is it likely to assume that their wholesale purchase price was 80% of the selling price? 50%?

Is it more likely that a used car dealer is looking for a fixed markup, ie: $1500 per car?

Is there any correlation to the KBB used car dealer trade in pricing? Like "Those numbers are close to their wholesale price", or "KBB tends to be about 20% over what a dealer can buy at auction for"

Are there online wholesale price guides that have any meaning?

Is it all shooting from the hip, or is there a bit of standardization to it?

Do dealers buy at auction expecting to be able to sell (and/ or finance) for XX% markup?

Thanks.

The guide book being used varies by location. In New England, it's "Buy at Galves, sell at NADA" (usually). Obviously, at an auction, you're trying to get the lowest price. You usually have a ceiling price, based on condition and your experience with the vehicle. There is no fixed ratio, or dollar amount between cost and sale. You can sometimes make more total money on a cheaper car. Sorry if this isn't the answer you were looking for, but it based on my experience, with a couple of decades in the auto business, and a few years of going to auctions.

In reply to car39:

OK, so it varies. Perhaps a lot.

But what is normal?

There has got to be a point where a dealer says, "No way".

I suspect a 10% markup would be sufficiently low for any dealer to walk away.

But I also suspect that many dealers don't have anywhere near the negotiating wiggle room that some buyers think they do. ("I'll just lowball the SOB, and offer him 35% of what he is asking").

Is a "normal" markup something like 50%, or more like 25%?

I go to a lot of business auctions and they may have 1-10 cars/trucks and dealers often buy them. Saw 4 or 5 work trucks go at one cheap recently, they were on a lot near my shop the next week.

Also near my shop are a few rebuild shops that seem very hack but fix and turn over cars and trucks quickly. I'm assuming they wholesale to dealers.

Finally some specialize in a single marque and will pay more for some and also can take the less than desirable condition because they know more about them or have spares galore.

Doesn't really answer your question except there are a lot of ways to make money and they'll try every one and some your haven't thought of. Or maybe you have. (sell the same car 5 times buy here pay here) :)

I tried to buy a unicorn (2005? Volvo V50 AWD T5 6 speed) with obvious to me body damage and a CEL for $6500 and got told to pound sand. I worked at a dealership, so it was easy to find out he paid $4500 at the auction. I figured $2k after one week was fair, especially considering the CEL was a complete unknown that could have cost thousands to fix. The asking price was $9500. It sold 3 weeks later, not sure for how much.

Bottom line is it depends on the dealer and if they know what they have. Sadly, my seller did.

I asked an over-simplistic question, and you guys are offering me more meat than I expected.

Thanks- Keep it coming. Good stuff.

I owned a medium sized used car lot for nine years before I was a Police Officer. I sold everything from $3000 corollas to $50,000 NSX's and H1 Hummers. My average profit per car worked out to about $800. Mind you that included losses on some cars and $4000 profits on others. That was the average over 9 years selling between 200 and 350 cars a year. This is based on the sales price and a majority of the cars I sold outright without financing. I also sold most of them based on price via the internet etc. The profit numbers are much different for financed or buy here pay here cars.

My average car was one that I would sell for approx $5000.00 I would normally buy the cars for around $3000 at the auction, and spend a few hundred rehabbing them.

I still flip cars on the side through my friends car lot for extra money. Last year I sold 30 cars and made approximately $20,000. Which works out to $750 a car. I still sell cars in the sub $5,000 price range.

I have a friend who sells a lot of diesel trucks and he averages $3000 profit per truck but this is obviously at a higher price point.

So I guess my answer is it depends on the car

In reply to pimpm3:

So, it sounds like you now make the same amount per car, and have reduced the overhead and stress, while gaining the benefits of a public service job.

You have learned the recipe to successful self-employment- find a better boss.

Win/win.

SVreX wrote: In reply to pimpm3: So, it sounds like you now make the same amount per car, and have reduced the overhead and stress, while gaining the benefits of a public service job. You have learned the recipe to successful self-employment- find a better boss. Win/win.

Just wait till I retire and can devote more time to the trade...

There really isn't a simple answer. Car's been sitting on the lot for 4 months, eating finance, and it's time to go. You're offering me cost + commission + finance charge, and SOLD to the man! Car is hard to get, hotter than a pistol, got it off the truck 15 minutes ago, and see you later Mr. Lowball. Maybe the simple answer is how much is the car worth to you? That's the price you have to pay.

In reply to Datsun1500:

Sounds like what you are saying is that most small dealers operate at a loss, and don't even know it.

Just like construction contractors!

Many years ago I sold at a Porsche Audi vw dealer. New cars didn't make much. Used cars averaged 2000 in profit (usually after negotiating the price down by a grand). Big range on individual cars, but big picture is buy low sell high.

Datsun1500 wrote: In reply to SVreX: Depends on how small. A corner dealer with 20 cars in stock, with low overhead, will be more profitable with less hassle than the guy with 55 cars, a manager, 2 salespeople, etc. because there is less to pay attention to. Many small guys decide to become big guys and are out of business a year later. Small is good, big is good, it's the middle that gets tough. The middle is all of the overhead of the big guy with none of the sales.

You are 100% correct. I made about the same when I had 35 cars on the lot vs 80. More cars equals more overhead, more headaches, more work etc...

Selling 4 or 5 cars at a time like I do now is so much better...

I had a small used car lot in the mid to late 70s. One thing I can tell you is, back in those days at least, buying at an auction could be detrimental to your health. I had a partner that was very good at sales. My primary function was inspecting before purchasing and keeping the cars ready for sale. I almost got in a fight twice for turning a car my hotshot partner bid out back in with a list of problems that didn't show up on the line. Both times I remained as calm as possible and reasoned my by way out of the inevitable fight. I witnessed a buyer get beat up by three guys one day. Now, I doubt it's still like that but I just thought the warning might be helpful.

I had to rush my previous post. I'm not saying don't buy from auctions but get acquainted with some wholesalers watch for a while ask lots of questions. Go to some of the wholesalers places of business. See what they have to offer. Their prices are usually a bit higher there than they actually bid out for but it will give you an idea of what to expect. Get to the auction when the doors open. Watch the cars come in. You can look them over and get permission to test drive them. Wear jeans and get down on your knees and look underneath. Look for severe leaks and rust. Know before you bid what you'll pay. Some buyers will try to discourage you from ever bidding against them. Talk about games, it really gets bizarre sometimes. Hang in there learn how to steal some cars. There won't be many but those that you really buy right will make you grin a lot. A good day can be fun. Good luck to you. I've thought about having another go at it but I don't think I've got it in me anymore.

The reason we called it quits is because in general, people didn't like what began to come out of Detroit in the late 70s and early 80s. Good used cars were too expensive to make a decent profit.

I don't think I am opening a dealership. It's just something I wanted to learn more about.

Well... maybe. Someday...

Who knows.