Buying Used Vehicles

We have been discussing one of the chapters in my next book about various aspects of the car-buying business. The previous article was just about buying new cars; This time we will discuss purchasing used cars.

Once again, you should get your financing lined up before you go shopping. This will keep you in a position of strength and reduce the likelihood that you will fall victim to dealership financing scams.

Now, get this thought imbedded deep in you mind: Dealers do not pay more than wholesale price for any vehicle and sometimes they do not even have to pay that. If they have several similar cars, they probably bought them from a fleet of rental cars or some similar situation. They also buy blocks of cars from each other and at dealer auctions. In cases like that, they can usually buy for slightly below wholesale prices so they have plenty of bargaining room in those cars.

The dealers also get inventory from the public. Sometimes they will buy cars outright but it is more common for them to take cars in trade. If they take a private party’s car in trade, the dealer’s approach is to start at wholesale and deduct for needed repairs. In other words if they take in a car that has a wholesale value of $8,000 but it needs $400 worth of tires and $600 worth of body work, they will not pay more than $7,000 for it, but they will probably try to pay you less. Expect them to say something like, “We can get cars like yours at the auction for less than you want.” Whether it is true or not is debatable.

The only time a dealer will over-pay for a car is when they are taking a trade-in and they have excess profit built into the vehicle they are selling to that same customer. But, in a case like that they write off any amount they overpaid to buy one car against the profit they are making on the other one they are selling; therefore, they still consider themselves to be into the trade-in vehicle at the wholesale value.

The point of all of this is the dealer pays wholesale or less for every car on his lot. Therefore it is easy to compute how much to pay them, or more importantly, what NOT to pay them.
At some point they may take out a “book” of some type and try to imply that it is the Bible of pricing, but don’t fall for that. Those books are just “guidelines” and they do not all agree (Otherwise, why have more than one?). Furthermore, they are not as current as on-line information. Once you have a vehicle picked out, get to a computer and check out kbb.com (Kelly Blue Book). It will give you a great indicator of value. It even takes into consideration local matters like a convertible will have more demand in Florida and a 4-wheel drive will be common in Montana. Add $1,000 or 12%, whichever is higher, to the wholesale price and it is as simple as that. It will not work every single time but most dealers are going to have a hard time turning down a respectable profit like that.

If you are buying from a private party, you can employ the same basic procedure. First get your financing lined up and then use the kbb.com site to tell you a fair “private party price”. It is usually about halfway between wholesale and full retail.

Frequently, the private parties are more difficult to negotiate with than the dealers. Some private parties need to get retail pricing because they owe so much debt against the vehicle, but that is not your fault so do not overpay them. Others are just greedy and looking for a full retail buyer. Hopefully, you won’t be that person.

Furthermore, the dealers will ordinarily give you some sort of warranty, but private parties do not. In addition, the Better Business Bureau and the State Attorney offer some sort of leverage against a dealer, but they are of little value when dealing with Joe Blow.

Finally, when it comes to buying used vehicles, I have a strong preference for Federal Government auctions. If you are in a large metro area, there is a good possibility they are right in your area. A common one is GSA auctions. If there are very few private parties at the auction, you can usually get nice vehicles for wholesale prices. That is because your primary competition is car dealers and as we just noted, they do not pay over wholesale. So if you bid $100 higher than wholesale, there is a good chance you will be the high bidder.

You can generally assume that these vehicles are in good shape because the employees who drive them are supposed to be taking them in for regular maintenance. In our area, most of the vehicles have less than 65,000 miles on them or they have very few miles but they are 6-7 years old. My last purchase was a 7 year old pickup with 4-wheel drive, air conditioning, automatic transmission and only 28,000 miles (It would have still been on warranty if it was younger) for $4,700. I have been driving it for about 4 years now and can still get all of my money back if I want to sell it.

I have bought at least two-dozen cars and trucks this way. Many were for personal use, others were helping friends and family, still others were work-trucks, and we have even purchased a fair number of them strictly for resale.

Sometimes they have other interesting items at government auctions such as large trailers, buses, ambulances or wrecked cars.

Other government agencies, as well as businesses and private parties also use the auction process to unload inventory. The state of Colorado uses Ebay’s auction format to sell a lot of their vehicles.

The City and County of Denver sells all sorts of fascinating “vehicles” every year. In addition to many dozens of vans, pickups, and autos, they always have gobs of other items like excavators, bobcats, trash trucks, dump trucks, tractors, pavers and lots of heavy equipment. One year they sold three very large fire trucks for $2,700 – FOR ALL THREE! Two of them still ran. It is a hoot to go to auctions like that, even if I don’t buy anything.

One final point regarding auctions: The best bargains usually come at the very beginning and very end of the auction. In the beginning of the day, many customers arrive late and others hold back until they are familiar with the process. At the end of the day, the excitement wears off and most people already have what they came for so you may only have a couple people or dealers who will bid against you.

The bottom line is, I suggest you get on line and search for any auctions in your area. At the very least, you will have a good time and you just might find an incredible deal.

The next article will be about the challenges in the Finance Manager's Office. Come on back.

My other blog is currently discussing Illegal immigration. Come check it out