When it comes to buying a used vehicle, people always want a good deal. Unfortunately, the only way to get one is by understanding the numbers. There are six you need to know:
- Dealer wholesale – what dealers pay for used vehicles
- Dealer input cost – money put into a vehicle to make it ready for sale (e.g., oil change, new tires)
- Dealer markup – dealer profit added to total cost
- Sell price – sell price of vehicle (after you get your “deal”)
- Admin fees and taxes – charges added to sell price to arrive at the final invoice price
- Final invoice price – what the customer actually pays
So there are a bunch of numbers but that’s not the confusing part. The confusing part comes when someone says “blue book.”
Kelley Blue Book
Kelley Blue Book is the gospel of used car pricing and is available free online. The problem is, they have different prices based on how you access it. They are as follows:
- Dealer wholesale – what dealers pay for your car
- Dealer sell – what dealers sell it for
- Private sell – what someone should sell the exact same vehicle for, privately
If you access KBB from a dealer ad on Autotrader, it shows the price a dealer will sell for (not the wholesale cost). But if you enter the same information as an inquiry (using a separate window), you get dealer wholesale.
Why does this matter? Because it explains how to get a good deal. For example, Marty wanted a 2010 Lexus ES 350. He opened two windows on KBB’s website and grabbed a telephone. Here’s what he discovered.
- Dealer wholesale – $8,000
- Dealer input cost – salesperson said just an oil change
- Dealer markup – $5K less an oil change
- Sell price – advertised sell was $13,900, but they’d take $13,000
- Admin fees and taxes – salesperson said $495 plus sales taxes
- Final invoice price – $13,000 + $495 + PST/GST
Once he understood the numbers, Marty could then negotiate the dealer markup (down). Better yet, he could compare the dealer’s price to what it would cost him to buy the car privately.
Private sale
KBB offers a third price called private sale. It’s their estimate of what a private seller should ask. It’s always above dealer wholesale, but below what you’d pay from a lot. As you’ll see, you pay less for the same wheels when you buy privately, plus you avoid the taxes and admin fees (which, using Marty’s example, adds up to $1-2K, depending on where you live).
The only issue with buying private is inspection. Dealers have on-site staff to evaluate a vehicle, you don’t. So you’ll have to take it to a mechanic to ensure the vehicle is sound. And if you don’t have a mechanic, there are plenty of private inspectors around.
Curbers
So who are curbers and what do they do? Curbers are regular people who buy vehicles, for as close to dealer wholesale as possible, and sell them for something more. And because a lot of us aren’t good with numbers, they make money.
Summary
There’s good mark up in used cars. Kelley Blue Book is owned by Auto Trader, who get most of their revenue from dealers. That’s why the system is rigged in their favour.
The spread between dealer wholesale and final invoice is huge, so you can save a lot if you keep your eyes peeled and buy private. Paying more than dealer wholesale, but less than dealer retail, lets everyone win (plus you save admin fees and taxes). Yes, it takes more effort, but in the end it’s worth thousands.
Of course, there’s always the financing part—but isn’t that what in-laws are for? (Take post-dated cheques.)