Oh, the angles we could take on navigating the used car lot game. The wheeling and dealing, financing and warranties are all great topics. Let’s put all that aside for now and go back to the used car search. How did that used car end up where you’re seeing it?
I use the word CAR loosely here. What I’m focusing on is passenger cars and pickups, 1 ton dually and smaller. I’ll just refer to all of these as cars for ease of writing.
The Used Car Lot Game – How Did It Get Here?
Used cars end up on lots for one simple reason. Someone no longer desires them. Private parties, car rental agencies and corporate fleets replace vehicles regularly. These cars find their way to the used car lot in one of three ways.
- Someone traded to a dealer for another car, new or used.
- Many cars are auctioned off in a public or private auction.
- Sellers may deal directly with the dealer.
What Happens To The Trade-in?
Let’s make this easy. We’ll use the new/used car in my driveway. It’s a clean ’07 Chevy Trailblazer LS with 155,000 miles. The Jeep dealer assigned a cash value to the car. Let’s say this value is $3,000. Now the dealer owns the car for 3 grand. Normally, the used car manager make the first decision, should we keep this car for our used car department?
This decision is not a firm decision in most stores. The car may look right, but could turn out to be a real junker. The only way to know is to let the dealer’s service department inspect the car. It could need brakes, suspension work, or many other repairs to meet the franchised dealer’s standards. In the case of our Trailblazer, there was nearly $2,000 worth of work that needed to be done. Remember this number. It’s important.
Do We Fix It, Or Wholesale It?
When the used car manager sees this estimate, he has to make the choice to keep the car, or to sell it on the wholesale market. Again, remember that term. We’ll get to these wholesale cars soon.
It’s also important to know that most dealers charge the used car department full retail for all their repairs. They also tend to lean less on aftermarket parts. In the case of our Chevy, the same franchise owns the Chevy dealership right across the street. The Trailblazer was repaired with genuine GM parts.
Brake work, suspension work and a few seals made up the bulk of the repairs on our car. Any reputable dealer will gladly show you their work orders, and what they repaired on the car. New car dealerships have no interest in selling anything they know will bite them in the ass down the line.
Let’s Wholesale That One
Tha same used car manager may have decided the Chevy wasn’t worth spending another 2 grand to make it right. He also has a regular supply of trade-ins that have more miles and problems. These cars will never see his used car lot. Somewhere on that lot is a back corner full of these beaters, high milers and rust buckets. They may have some life left in them, but they don’t meet franchised dealer criteria.
Used car wholesalers are all over these cars. Keeping the corner budget car lot stocked is a full time job. One of these wholesalers may buy that Trailblazer as-is. Let’s say he bid 2,800. The wholesale department is rarely a profit center. In fact, (my opinion) if the wholesale department isn’t loosing money, that used car department is leaving cash on the table.
What Happens To The Wholesale Cars
The dealer was looking at a $2,000 repair bill on that Trailblazer. The wholesaler either owns, or is selling to a used car lot with no franchised ties. Once here, the repairs focus on safety and sellability. Lights, brakes and horn are biggies as far as safety goes. Oh, and they can go to the discount auto parts store and pick up the cheapest parts on the market. They may even buy used parts.
And that suspension work? Probably not happening. If the car drove fine without the repairs, it’ll keep going a few thousand miles more.
Wholesaling to another franchised dealer is also not uncommon. If a used car department is heavy on inventory, that manager may decide to sell a group of cars. That Trailblazer could have been packaged up with several other used GM cars and sold to a Chevy dealer needing inventory.
Why We Bought From The Dealer
First off, those corner budget lots serve a purpose. They sell budget transportation to people with limited funds. I have to admit, I’ve had some very dependable cars that were well under $2,000 dollars. I’ve also bought some more expensive used cars that turned out to be real lemons.
I knew the Trail Blazer had to be a little above average for this dealer to keep it. We bought our new Jeep from them. Our daughter bought her new Dodge van from them. If you’re in Green Bay, you can’t go wrong with Grandrud Jeep. They’re a class act.
I also knew the service department was able to do a more serious inspection on the car, and repair it with good parts. Did I pay more for this? Probably not. I did my homework before we made an offer. Had I bought it for $1,000 less at a used car lot, I’d still have new brakes, but I doubt the seals and suspension work would’ve been done. If it was, it most likely would have been a budget repair with the cheapest parts.
What About Those Auction Cars?
Auto auctions are a blast. I’ve been to quite a few back in the 90’s. These weren’t public auctions. They were GM auctions. GM rental returns, lease returns, factory buybacks and other cars owned by the manufacturer were up for bid.
Local dealer auctions are also big. All you need is a dealer’s license, or be representing one. This is where quite a few of the used car lots get their cars. They may be repossessed cars or vehicles that have been on the lot for too long. These auctions are also another way a new car dealer can “wholesale” his undesirables. As they say, “one man’s junk is another man’s treasure.”
Disclaimer here: None of this is cast in stone. I’ve been out of retail car sales for years, but the business model remains the same.
Related Topics In The Show
- Why wholesale operations should be money loosers
- Boo Hoo cars and EVERYBODY RIDES
- Carmax and car vending machines
- What’s not covered by the as-is sticker
- ACV vs private party
- Franchised dealers and budget lots
- Depreciating inventory
We talked about the wheeling and dealing end of the car business back in Episode 70, Buying a Car or Truck. Tips and Tricks From Buck’s Car Salesman Days.
We close the show with a list of songs men should never sing in the truckstop shower, or any shower where others can hear you.