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Estimate a Dealer's Used Car Cost

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It's almost impossible to determine the dealer's actual used car cost when they acquired the vehicle from an auto aution, wholesaler, or individual. The best thing you can do is estimate what the dealer should have paid for the vehicle and start your negotiations from there.

There are resources readily available online to help calculate a used car's cost and by doing a little math upfront will keep you from overpaying for the vehicle later.

Dealer's keep their used car costs a closely guarded secret. Normally, only a select few within the dealership have access to this top secret information.

No matter what anyone tells you, there's no way to tell exactly what a dealer paid for a used car. Each used car must be looked at individually. The condition of the vehicle, mileage, factory options and even consumer popularity are just a few factors that determine the dealer's overall cost.

Figure a dealer's true new car cost here.

Used car sales are a high profit area for a dealership, one of the reasons for this is, a dealer does not have to disclose their cost for the world to see. Dealer's have a greater opportunity to make more money selling a used car over the sale of a new one. This is where the old saying, "Buying them cheap and stacking them deep" comes from.

Used Cars Do Not Have an Invoice

Unlike new cars, used cars do not have an invoice. Each used car must be looked at on an individual basis. Dealers buy used cars from auctions, wholesalers, rental companies, or acquire them through the dealerships as trade-ins.

Dealer's make internal cost sheets for each individual used car. These cost sheets act as invoices for the used vehicles and allows management to see exactly how much they have invested in a vehicle.

This type of system makes it difficult for you to determine what the true cost is on a used car. You can never tell if the car dealer bought the car cheap (under wholesale or market value) or actually overpaid for the vehicle.

Factors That Affect a Dealer's Used Car Cost

There are many factors that affect a used car's cost, these factors will cause the cost of a vehicle to fluctuate up or down. Some of these include;

  • Condition of the vehicle
  • Incurred mileage on the car
  • Factory options and trim levels
  • Popularity and demand
  • The current used car market
  • Dealer reconditioning costs
  • How well the vehicle was acquired

Overall, most car dealerships average cost on a used car is just below the listed wholesale price of the vehicle. Buying a reliable and dependable used car below or close to the listed wholesale value is considered a very good deal when it comes to buying a used car.

Used Car Reconditioning Fees

Reconditioning fees are costs incurred by the dealership to repair or replace parts to bring the vehicle up to retail sales condition. Reconditioning fees can be for mechanical repairs, bodywork, touch-up, tires, oil change, detail, etc. Some vehicles may only require minor reconditioning and some may have major reconditioning fees associated with them, it all depends on the condition of the vehicle when acquired by the dealer.

Used Car Pack

On top of reconditioning fees, a dealer may add a "Pack" to the vehicle. Pack can be anywhere from $250-$750 or more. Pack is added to every car to help pay the operating costs of the dealership. Although it may be hard to negotiate at some dealerships, it is negotiable, and salespeople are not normally paid commission on this amount.

Dealer's Used Car Cost Sheet Example

Most dealerships keep a three ring binder at the manager's desk (it may be on computer). This binder holds all the used car inventory available for sale on the dealer's lot.

Each vehicle has its own cost sheet, which contains every dime spent on reconditioning the vehicle to make it ready for sale.

Used Car Cost Sheet Example

$8,300
=
$750
=
Pack (Additional money salesmen not paid commission on)
$250
=
U.C.I. (Used Car Inspection performed by dealer)
$175
=
Windshield replaced
$150
=
Broken console repaired
$75
=
Front and rear bumper touch up
$110
=
Detail
$9,810
=
Total Dealer Cost

How to Estimate a Dealer's Used Car Cost

First thing you want to do is find a car you want. You can do this easily by using free online used car listing sites. These sites have millions of used and certified pre-owned vehicles to choose from. Their online tools allow you to fine tune search criteria to find that perfect used car.

Once you've picked out the used car you'd like to own, print or write down all the specifics of the vehicle such as the year, make, model, trim, miles, and options. You'll use this information to help estimate what a dealer should have paid for the vehicle.

You're now going to appraise the car just as a dealer would do if you were trading it in. The appraisal tool I recommend is Black Book Trade-In Value Tool. Their tool tends to be closer to what the actual used car market is in your area at any given time.

Enter the information about the car. Make sure you enter the correct year, make, model, trim, exact mileage, engine, transmission, options, etc. You will then choose the vehicle's overall condition. Your choices will be outstanding, clean, average, rough, and damaged.

If you're looking at a used car from a reputable dealer you should choose the condition as "outstanding" to get the most reliable number.

The last section will provide you with three amounts:

  • Trade-in - What you can expect for your trade from a local dealership.
  • Private Party Sale - What to expect if you sell or buy a car through a private party.
  • Dealer Retail - The price others are paying for the same car in your local area.

The trade-in amount is the one you're interested in. This will give you the closest estimate to the dealer's original cost and a good starting point for negotiating. Even though a car dealer will add more cost to a car before making it available for sale, they'll try to keep their reconditioning costs to a minimum.

In reality anything under "dealer retail" would be a good deal since that's the "average price" people in your local area are paying for the same type of car. However, your goal is to purchase the car below or as close as possible to the trade-in value.

Write down all three amounts, trade-in, private party, and dealer retail. You will want these figures when you start negotiating a used car's price.

Additional Used Car Cost Tips

Below are some additional tips on how to get a feel for the current used car market and some additional information on other sources available to check used car values and resources.

Kelley Blue Book Used Car Values

Over 80 years old and commonly misspelled Kelly Blue Book. This is the book most people refer to not realizing there are many other used car value books in the industry.

When a car dealer hears you say, "What's the Blue Book Value?" He immediately knows you haven't done your homework and will be easy prey. The Blue Book does provide some very useful information. However, in my experience it does not provide the best figures for estimating a dealer's used car cost. It is more commonly used when a dealer is providing retail numbers, since they are much higher than other publications.

NADA Used Car Guides

The second oldest used car publication, the little yellow/orange book is the official used car data guide for members of the National Automobile Dealers Association (NADA). Most auto lenders use NADA clean trade value to base how much they'll lend on a vehicle. The reason I don't recommend using this book is because most dealers will buy cars well under NADA clean trade.

The Black Book

This is the most commonly used book by dealers to evaluate trade-ins, you must have a dealer's license or know a dealer to get your hands on one. You may notice when you get your vehicle appraised the value you're offered is significantly lower than the trade-in value of other books in the industry.

Updated on a monthly basis, The Black Book provides dealer's with true auction or wholesale values. These numbers are what a dealer may pay for your car at an auction, allowing for any reconditioning fees he may have to incur to prepare the vehicle for sale.

eBay Motors Recently Sold Vehicles

Another great source to check the current market conditions on a certain vehicle is eBay. Put in the vehicle, go to the left column, scroll down to "Show Only" and check "Sold Listings." research the past few weeks and see what the car has been selling for.

The only thing I would add is make sure you're comparing apples to apples.

Search Free Online Classifieds

Enter the vehicle you want to buy into CarClearanceDeals, Edmunds or CarsDirect and request a free dealer quote. Once you've received the quotes, compare the prices with what you've estimated above to be the dealer's true cost.

This will give you somewhat of an idea of how much mark-up is in the vehicle. Keep in mind, it's only a guestimate. You should always take the time to price the vehicle you want to buy through the Black Book Trade-In Value Tool to get the most accurate pricing amounts.

Carefully Read Tricky Classified Advertisements

When you skim through classified ads, it's easy to miss something and focus on just the price. Car dealers are very good at writing classified advertisements, leaving the negative aspects out of an ad and focusing on the positives of the car.

Let's say you're searching for a certain car and there are 5 of them listed on CarClearanceDeals. They're all identical vehicles and have about the same mileage. Four of them are priced in the neighborhood of $15,000 and one is priced at only $13,000.

Why is this one vehicle $2,000 cheaper? Look closer at the ad, are the miles conveniently left out? Is there a certain option it's missing? Is it a different trim line? Maybe it's just a really good deal...My point is, dealer's can be very tricky with the way they advertise their vehicles. Slow down, be cautious and remember, "if it sounds too good to be true, it probably is."

The best way to protect yourself from being ripped off by a dealership when buying a used car is to not rush into it. Slow down, take your time, do your research and make good buying decisions. Doing so will ensure you get a great deal buying a used car.

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DID YOU KNOW?

There is no such thing as a used car manufacturer. Pre-owned vehicles can come from anyhere. They are acquired by a dealership through wholesalers, auctions and local trade-ins.

Since there is not a factory invoice price to refer, it can be difficult to determine a used car's cost.

However, there are things you can do to get a good idea what a dealer paid for a vehicle.

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