Originally Posted by Cary Grant
Relatively more? Yes... at least on lower priced new cars... I asked and my sales person showed me the record of what they gave om the trade in I bought. Their profit was not "huge".
The number which a dealership "gives" for a trade in is not a meaningful figure. That is only one of several variables in the deal. Dealers will say 'I showed him $xxxx on his trade". The real value that the dealer is assigning to the car is almost always different.
There are many more variables possible but I will make it simple with two examples. Buyers A and B have identical, lien-free trade in vehicles. They both want to buy identically equipped Excello 450 SE's from the Excello dealer:
New car buyer A is hung up on his trade in being worth $10,000. It has a wholesale value to the dealer of about $9000. He wants to buy a $30,000 MSRP car. The dealer gives him his $10,000 trade in value and sells him the car for $30,000. The dealer grosses $29,000 on this deal, a trade in with a value of $9000 plus $20000 in cash.
New car buyer B comes in with an identical car to trade in. This guy has no idea what his trade in is worth but he fancies himself to be a negotiator and wants to hammer the dealer on the price of the new car. He does it. He gets them all the way down to $25000 on the car he is buying and they agree to give him $5000 for his trade. So he signs over the title to his car, gives them another $20000 in cash and has his new car. The dealer grosses $29,000 on this deal, a trade in with a value of $9000 plus $20000 in cash.Those two deals are identical for the dealer and for both new car buyers.
One buyer was shown $10000 for his trade. The second buyer was shown $5000 for his trade. Both are probably bragging about how they played hardball with the dealer.
Now the two identical trades go onto the used car side of the dealer's lot. You come in and give them $10000 cash for trade in A. They show you that they actually paid $10000 for that car. So you are getting it at dealer cost. You negotiated them all the way down to dealer cost. That is a great deal, right? In reality, they made $1000 on that car.
I walk onto the lot and want to buy trade in B. We go around and around. I end up paying $10000 cash for trade in B. They killed me, making a 100% profit, right? No. In reality, they made $1000 on that car.These two deals are identical for the dealer and both used car buyers.
We paid the same price for identical cars. You paid dealer cost, according to the record of what they paid for it. I paid double dealer cost, according to the record of what they paid for it.
So how meaningful is "dealer cost" when you are buying a used car?
And this is a simple example. There are several more moving parts in most transactions at a new car dealer.