When working with customers who have done their own research on trade values, the issues of pricing sometimes come up, specifically trade in, third party, and retail prices. A lot of buyers with trade ins don’t understand why they can’t get just under retail for their trade. This seems like it would allow the dealership to make money by quickly flipping their vehicle for a few hundred dollars more.
When looking at the price differences, you should consider two things:
1. Reconditioning costs
A lot of car buyers trade their old vehicles to avoid spending money on needed upcoming maintenance. We see a fair number of trades with the original set of tires and brakes that need replacing. Which means that in order for our dealership to sell the vehicle, those tires and brakes need to be replaced before we can sell it. We see a lot of trades that have a nearly expired or recently expired warranty. We see a lot of trades that are older, high miles vehicles that are getting traded because it is costing too much to maintain these vehicles or they are on their last legs.
A good, reputable dealership is to going to spend a fair amount of money reconditioning their vehicles. And in some cases the bill can be in the thousands. Some of the difference between trade in values and retail prices comes from the costs to recondition these vehicles.
As a dealership, if we want to sell a certain vehicle today, we send it to the auto auction or a wholesaler. There are a lot of trades that we don’t turn around and sell on our lot, either because it isn’t the type of vehicle that we typically sell or it is going to cost too much for us to recondition and repair.
We also occasionally send vehicles to auction if they have been at the dealership for too long and it doesn’t look like we will be able to sell it to a retail customer. If you want to sell something today, you are going to get a wholesale price from a middle man. In the case of vehicles, this is a trade in value. And when we buy a trade that we send immediately to auction, we receive a wholesale price for that trade.
As a dealership, our business is selling retail vehicles. Retail vehicles sit on our lot until we can find a buyer. We can get a retail price for our vehicles because of our brand and our willingness to wait till we find a buyer. A business that takes the risk of holding inventory, with a brand and reputation, the cost of overhead, and that takes the risk of receiving bad inventory is going to be able to sell at a retail price. This is why your local dealership charges a retail price for their vehicles.
Third Party Prices
The third party price is between trade in and retail because buying or selling to an individual is less convenient and easy than buying from or selling to a dealership. It typically takes about 45 days to sell a retail vehicle at a dealership. We occasionally have pre-owned vehicles that have been here for 90 days without being sold, and those vehicles usually get sent to the auction at that point.
If you are looking to sell your vehicle today or this week, you may not be able to find a third party buyer for your vehicle in that time frame. As a third party seller, you will probably have to show your vehicle to several people before you find a buyer, and that buyer is probably going to want to negotiate a lower price. Most of our customers want to drive a vehicle before buying it, do you want several people driving your car before one of them buys it?
If you are looking to buy a vehicle from a third party seller it generally isn’t as convenient as going to buy a vehicle at a dealership. And just as we get people looking to trade vehicles before having to spend money on needed maintenance, you are probably going to see a lot of vehicles that need repairs or routine maintenance. The third party sellers don’t wait around all day for buyers to come take a look at their vehicle. You will have to work around both of your schedules. You can buy are a vehicle for less from a third party seller because of the added hassle and maintenance issues.
For questions and comments, contact Robert Kobey at 812-331-2200.