When it comes to the used car world, there are few things more mysterious than pricing. You hear a lot of terms thrown around—bluebook value, trade-in value, wholesale value, etc.—and keeping these definitions straight can be tiresome. Just as surely, it can be difficult to determine how much you should really be paying for a new vehicle, or how much you should realistically expect in terms of trade-in value.
It’s worth pausing to ask the question: How do dealers come up with their prices? Perhaps that will shed some light on this whole enterprise. The answer, put most succinctly, is this: The market determines what used cars sell for. The pricing that dealers put together is always going to be based on current market data.
Determining Market Value
But what, more specifically, determines the current market value of a vehicle? There are a lot of factors that come together. The condition of the individual car is certainly a factor, and so is the mileage. Whether a franchise dealer is able to sell it as a certified used vehicle is also important.
Also understand that pricing can be relative to location and to season. For example, sporty convertibles tend to be priced lower in January because the demand for them is simply lower during the cold months of winter. Likewise, a pickup truck will have higher demand in rural Minnesota than in the heart of Miami, so the pricing can vary there, too.
How Dealers Operate
Typically, used car dealers will attempt to purchase used cars at something close to the average auction price, whether they are actually buying from auctions or from private parties. Buyers do not have many opportunities to purchase vehicles at this price, which is sometimes called the wholesale price. With that said, you can usually find wholesale numbers online, and it’s a good thing to know before you try to negotiate with the dealer; understand that the dealer won’t be able to sell you the car for lower than that, and in fact will have to go a bit higher in order to turn a profit.
Indeed, after a dealer buys a vehicle for the wholesale price, the dealer will invest into reconditioning and marketing the vehicle, which means a markup on the price. There will also be some padding built into the price for negotiation.
Getting the Best Deal
The bottom line: Consumers want to pay as close to wholesale price as possible, while dealers want to sell for as close to the retail price as possible. So how do you know what the truly fair price is?
Our answer is to consult with a resource like NADA or Kelley Blue Book, both of which will give you an accurate baseline. Also understand that you may be able to negotiate a little off the sticker price, but never more than 20 percent, and sometimes no more than 10 percent.
Keep that in mind the next time you’re out shopping for a used automobile!