Used Car Pricing

Published in Car Smart Eletter, Written By Omid Badie, 2018-08-01

If you have ever tried to sell a vehicle privately or even trade it in, it will have become obvious to you that there is a vast gap between what the trade in value of the car is and its retail value. To understand why this is and how you can get the most money for your old car, let’s look at how the used car pricing works in the market place.

Retail Pricing
This is the price you see dealerships selling their used cars for. It is also the price advertised on sites such as Auto Trader, CarGurus, etc. This is the highest level of pricing for a used car and where dealerships make their profit.

Wholesale Pricing
This is the price at which dealerships purchase cars from each other or at auction. Like any other business, dealerships buy at wholesale prices in the hopes of selling at retail prices. In most cases, dealers buy a vehicle "wholesale", meaning that they are buying AS-IS and are expected to certify them and restore them to showroom condition before selling retail.

With the market today, there can often be a few layers of wholesalers involved from the time a vehicle comes in for trade to the time it is resold to a consumer. The dealer that takes a vehicle in as a trade may decide not to keep it. They may sell it to a wholesaler who will then find another dealer who wants it. With each transaction, the vehicle's price goes up by several hundred dollars or more. Wholesale prices are most often unknown to consumers. There are, however, sites such as Black Book which are a very rough guide for what your vehicle’s wholesale value is.

You have to be very careful about such guides because prices can vary dramatically from what such vehicles are actually selling for.

Trade-in Pricing
This is the price that the dealership will offer for your vehicle as a trade in. It is the lowest of the three for these reasons:

• The dealer will offer you less than wholesale so that in case they can’t sell it at retail price, they can still sell it at auction or to a wholesaler for a wholesale price and make a profit
• They offer you less than wholesale because they factor in a certain amount for expenses they may incur (repairs, detailing, etc.) in order to get the car ready for sale.
• There exists a tax advantage in the trade in transaction: The trade-in price is deducted from the sale price of the new vehicle on your Bill of Sale and you only end up paying taxes on the difference.

Best Strategy
While we all want to get the best deal on a new vehicle and the most for our old one, people often accept the trade in value provided by the dealer for both convenience (ie: drop off one vehicle and pick up the other) and financial (they need the money from one vehicle to put towards the purchase price of the other) reasons. However, even with the tax savings, the retail price achieved by selling your old vehicle privately will almost always be dramatically higher than trading it in, as high as several thousand dollars higher. If you can afford it, the best strategy is to sell your vehicle to a retail buyer.

Many dealers offer a "We'll buy your car even if you don't buy ours" program as well as a trade-in program. Automall Network does also. That makes sense for some people however, with our goal to help our clients retain the most money overall, we highly recommend a consignment solution. Some dealers do not offer such a program while others offer their variation of it. While we cannot speak to other dealers' programs, Automall Network takes on the responsibility of advertising and selling the car from our premises for a flat fee of $600 with 100% of the vehicle price going back to the customer.

Tell us about your experiences with trading in a vehicle by emailing us at [email protected].