What Dealers do With Your Trade-In
There are certain types of cars dealers absolutely love to buy and some they hate.
You have to remember dealerships make a good bulk of their profit through the sale of used cars. They actually make more profit on each used car sale than they do on a new car.
So that means they're usually eager to buy your trade-in and replenish their used car inventory.
Generally, there are 3 things that dealers can do with your trade-in.
1. Recondition and Sell It
Dealers are always looking for cars they can sell on their lot - but not every car will qualify.
If your vehicle is less than 6 years old and has less than 80,000 miles, it's a good candidate to be resold on the lot. The dealer will recondition it to make sure all the visibilly worn parts are repaired or replaced and that it passes smog tests and any other state requirements.
The vehicle will usually be listed for 15 to 20% above its trade-in value.
If the car is only 3 or 4 years old and has less than 50,000 miles, it's a good candidate to be resold as a certified used vehicle. It will go through a strict multi-point inspection and usually come with an extended warranty. The price premium will add another $1,000 to $1,500 to the retail price.
Dealers simply LOVE late model used cars, so if you have one, make sure you aggressively negotiate with multiple dealers to get the best price.
2. Wholesale It
If a dealer doesn't think the car is a good fit for their used car lot, they will usually try to wholesale it to another dealer.
This usually happens if the vehicle is older or has a lot of miles, or if the car is a different brand than what the dealer sells. For example, if you trade-in a Honda at a Mercedes dealership, they're more likely to wholesale it to a Honda dealer down the road - or sell it to an independent used car lot.
Whenever you're thinking about trading-in your vehicle, make sure you take it to the same brand of dealership. If it's a much older vehicle, consider selling it to an independent used car lot so you cut out the middle man.
A car dealer usually doesn't make much profit when wholesaling a vehicle, so they will try to low-ball you as much as possible when you trade-in your car.
3. Auction It
For the really undesirable vehicles (usually ones that are very old, have high mileage, or are in poor condition), dealers will send them through auctions. This happens if the dealer can't find anyone to wholesale it to in their local market.
Auctions usually result in the smallest profit for dealers, so if you have a car that nobody wants, don't expect to get much for it by trading it in. It's much better to try to sell it yourself to a private party.
Dealers will almost always bid for your trade-in, even if they know they will have to auction it off. Making a couple of hundred dollars is better than nothing, but they will try to give you a very low-ball offer for your vehicle.
3 Steps Every Car Buyer Needs to Take to Save Maximum MoneyThe key to getting the best deal is to gather price or lease bids from as many local dealers as possible. Then shop that best price around until no one can beat it. Here are the steps:
Step 1 Get Prices From My Trusted NetworkSelect the vehicle you're interested in to see if there are local dealers in my network who will provide you with their best upfront price. You will get direct access to an internet sales manager who you can further negotiate with online (no need to visit dealership).
Step 2 Get Prices From TrueCar / CarsDirectTrueCar, and CarsDirect are my top 2 online price quote recommendations. These services show you pre-negotiated prices from dealers closest to you - and the deals are usually pretty decent. But remember, you can still negotiate further.
Step 3 Complete my ChecklistFollow this up with my checklist to make sure you squeeze out every last bit of savings.
- Gregg Fidan
Each week, I'll keep you up-to-date on the latest car deals and news that might affect your purchase. This includes...
- Best Rebates, Incentives, and Lease Deals
- Latest Car Buying Scams and Tricks
- The Best & Worst Time to Buy a Car
- Which Cars You Should Avoid