If you walk onto a used car lot, you may notice that, at first glance, the prices seem arbitrary. A similar vehicle costs thousands of dollars more than its direct competitor, a newer version is cheaper than an older-looking model. But trust us; there’s a reason why dealership prices are what they are for used cars, and understanding how the dealer gets to such numbers makes the entire pricing process less mysterious.
It Starts With Purchase Price
The first thing that dictates the car’s price is what the dealership acquired the vehicle for – it’s not always that simple, however.
Often, used cars for sale are trade-ins. This means someone’s turned in their old vehicle as part of their process to buy a newer one. A dealer assesses the trade value and condition to offer the customer a set number. This becomes the base acquisition price – however, that’s not always the end of the story since a car that’s taken in at $15,000 as a trade-in will likely require some adjustment before it hits the sales lot. On the flip side, cars purchased at wholesale auctions are entirely different since other dealers are there bidding too. While this drives up prices, it’s also higher risk for the dealership taking a vehicle home since they only get an auction inspection before putting it back on the lot for sale. Lastly, dealerships will directly acquire cars from owners who want to forgo the hassle of all those listings. If someone truly wants to sell a car fast and skips the online listings, then chances are a dealership could get it for a good deal.
Reconditioning Costs Make Up The Remainder
Most cars require work before hitting the market, and instead of factoring these costs on top of what was already paid, they’re considered part of the purchase cost before hitting the market.
First, there are mechanical costs. If a car runs like a dream but has worn brakes, tired suspension components, or leaky fluids, dealerships will almost always make those replacements since they don’t want customers to come back angry that something’s wrong shortly after purchase. Therefore, preventative measures occur even if it’s not technically required yet. Therefore, anyone glancing through used cars might recognize that prices go up based on presentation – and presentation is key to selling a car quickly and at good price – so dealerships invest in options beyond what expected.
Next, cosmetic options apply. Scratches get touched up. Interiors are steam-cleaned and even shampooed with stains pulled. Minor dings can get bodywork pulled. They want cars to look as good as possible because that not only sells quickly but sells at a better price.
Finally, many parts that people never consider also apply: new tires if they’re marginal, fresh wiper blades, detailing, sometimes new floor mats – they all add up. Suddenly a car that requires $2,000 worth of maintenance and repairs becomes part of its cost.
Market Research Averages Established
Dealerships do not just pull numbers out of the air. For fair assessment and competition purposes when running car sales perth, they see what similar vehicles are selling for both locally in their vicinity and across the nation.
They’ll check multiple sources – other dealerships’ listings, individual prices for private sales, credible online sources – with auctions being a source for comparable models when privy to specific shipping conditions too.
The catch is “comparable.” Year of vehicle, mileage, condition and specifications matter; a 2020 sedan with 60,000 kilometers will not be compared to a 2020 sedan with 100,000 kilometers with average condition; even though they’re both 2020 sedans, one is in much better shape than the other.
They’re even more sensitive to regional differences than buyers might assume – a four-wheel drive will cost more in a rural area than it does in a city for one; similarly, sedans will sell faster in an urban area compared to where SUVs dominate.
Overhead Costs Take Effect
Those who operate a dealership know it’s expensive to run one; it’s even more expensive when nothing gets sold.
Dealerships have rent or lots to pay for use (or mortgage), salaries for employees who help purchase/manages cars and sells them and themselves (most middlemen add employees only), insurance considerations for accidents/losses/maintenance, power issues and advertising costs take their toll before a single sale.
Most dealerships operate on margins – they must make enough on each sale to keep the doors open while effectively competing with other prices – but margins are not fixed; they fluctuate on individual vehicles on sale. High-demand vehicles with turnover and a quicker time-to-sell often have less margin because they sell so quickly it makes up for it. On the other hand, vehicles that do not move must justify taking up space and have higher margins instead.
The Balance Between Profit And Movement
The problem is consistently negotiating between two halves – selling too high means no movement, selling too low means no profit or missed opportunity.
Every day a car sits on a lot is money lost: it’s taking up space, it’s depreciating over time or years’ time – or time spent – not getting sold and funds are tied up – money that could otherwise go toward another vehicle. When cars sit for about 30 days (ish) dealers start to sweat; 60+ days means they’re willing to let go under market value.
This is why negotiation exists; if a car is listed at $25,000 even though that’s already $2K reduced – and most buyers have established negotiating power – a dealer can afford to lose money and get it sold in exchange for another vehicle. They might ideally want $28K since they’ll come down $1K to meet expectations but at $26K is enough; therefore they factor all of this into their price as well since buyers expect negotiation.
Age And Mileage Creates Bargaining Power
Some age-milage combinations automatically dictate where pricing will be low. Vehicles three to five years old with average miles – approximately 15K-20K per year – automatically become great values as depreciation levels off but they’re still modern enough.
Age and mileage versus potential performance come into play. A 10-year-old vehicle with only 50K kilometers sounds ideal because it hasn’t been worked hard – but why does someone sit on it? Did they not maintain it because they just drove it casually? Did components rot due to time versus use?
On the flip side, high mileage versus new vehicles become outdated; everyone has seen a newer car with 150K kilometers – but it’s been highway driving, which is easier than city driving – but many buyers focus solely on mileage and undervalue these vehicles.
Weather Impact Timing
Believe it or not – seasons matter in selling vehicles more than consumers realize or want to admit. Convertibles and sports cars have prime selling seasons in late spring through summer. Four-wheel drive vehicles have premiums in late fall or near holiday trips. Family-driven cars see moves right near back-to-school season.
Dealerships factor this into their prices; if a convertible arrives in late fall it’ll never sell at premium – but if it arrives in springtime, it does – and thus can carry higher pricing.
The Competition Ultimately Dictates Sale Prices
No one can control how people sell prices – it must be evaluated by what works best for all parties involved. If a dealership chooses high but buyers have every option nearby online to easily find sold vehicles at lower prices for comparable quality without travel time – then those prices won’t stick.
This ultimately helps buyers in favor: check out car sales and you’ll see that similar vehicles carry similar pricing levels because they’re selling characteristics – if a dealership wants $28K and three others sell for $25K, it’s not worth keeping unless it’s only slightly better – and thus marginalization occurs quickly.
Why Do Similar Cars Have Different Prices?
Even after all this logic makes sense, sometimes similar cars have different prices. But there’s normally a reason – even though there shouldn’t be; one has better service records or different specifications or different condition (cleaner) or different mileage.
Sometimes it happens simply because of new opportunity – a car that’s been sitting longer may get an aggressive sell after 90 days next to another fresh arrival at full price – the older has correctly priced appreciation against its time (even though it looks similar to its competitor) – and both sellers feel justified in their current settings.
Thus the process isn’t as mysterious as it seems once you factor everything into play; dealerships want to cover themselves with costs reasonably, ensure they can make a fair amount of profit and operate on turnover that encourages an active business without too high of overheads. All buyers need to do is look closely enough to determine what’s reasonable entry price versus what’s simply market value too high.
