For the longest time common knowledge said, "Dealers make all their money on used cars." While there is still profit to be had in the pre-owned market, the days of six or seven thousand dollar markups are gone. So when you are used car shopping focus on the value more than the discount.
What Are Used Cars Worth?
We all know that internet shopping tools have empowered not only car buyers, but anyone trying to sell or trade their vehicle. Websites like KBB, Edmunds TMV, and NADA give market value estimates on what a car is worth for a trade, private sale, or dealer retail. None of these sites are perfect, and sometimes their numbers can be way off. Keep in mind that most dealers offer "wholesale" value on a trade. That being said, I have found Edmund's to be more accurate than the rest in terms of valuing a trade that is eight years old or newer.
(Note: When evaluating your own vehicle, be realistic. If it is five years old and has 50,0000 miles don't select "outstanding" condition. If it is only a year old and has 8,000 miles that is another story and know that any damage on the vehicle history report reduces value.)
Most buyers will use one or more of these tools to get an idea on what their car is worth before going to the dealer. If that dealer offers several thousand less, than the estimate it is likely that customer will go elsewhere. If the dealer comes close usually they will make the trade.
On the other-side of the equation, that dealer has to price the car appropriately for sale. Because many buyers are going to use the same tools listed above to see what a given vehicle should sell for. If a dealer prices a car too high, then run the risk of getting fewer inquires on that vehicle and their goal is to get that car off the lot as soon as possible.
How Much Should I Expect To Save?
That all depends on the car and the local market. Most lightly used vehicles will have a markup from about $1000 to $3000. Keep in mind that some dealerships will have spent some money reconditioning the car for resale, and very few will take a loss on a used car because they don't have the manufacturer hold-back to use as a buffer.
Of course the savings is all relative and sometimes depending on the vehicle and location you may not "save" any money at all. The old rule of supply and demand still dictates prices. We all know that the "book value" of a Porsche 993 is pretty much useless due to the collector market for these cars. But even regular cars can be subject to higher prices, last winter in my area CPO Audi Q5s were hot sellers. Dealers regularly sold them above market value, and people paid the price.
What Is The Best Value?
A simplistic way to approach this is to find the newest, lowest mileage, most well equipped car for the least amount of money. But first you need to decide which car you want. Say you are shopping for a lightly used Mazda3 and have a budget of $18,000 and you narrow it down to these three options.
Option one is a 2013 compared to the others that are 2012 models has the least amount of miles; it also has less equipment. So if you don't care about bells and whistles that '13 is a good value. If you want more goodies like leather, sunroof, and navigation you may have to look into a 2012. At first glance option two looks to be a winner it has fewer miles and is about the same price as option three. However option three is a "certified" car that gives you a little extra warranty coverage. Though I would say the higher miles on that car essentially washes out that extra coverage when you compare it to option two.
Purchasing a pre-owned vehicle is more complicated than buying new. Once you have decided the make, model, and equipment on a new vehicle, it is an apples to apples comparison at the dealerships for price. In the used market it is almost impossible to compare two identical cars, even if the year, make, equipment and miles are exactly the same there is also the matter of condition. This is where shopping online has its limitations. A great car on paper, maybe a total crack-pipe once you see it up close. The key is to narrow down your selection to a handful of vehicles that are worth checking out in person. And always get a used car inspected.
Making An Offer
I've spoken with several used car shoppers who became very frustrated when they made an offer significantly lower than the vehicles advertised price and the dealer refused to budge or gave very little in the way of a discount. Often these cars are already priced at or below market value. No one wants to pay "sticker price," but when you make an offer do your research and make one that is reasonable within the market value. If a car should sell for $12,000 and you offer $9,000 don't be surprised of the dealer doesn't take you seriously.
If you have a question, a tip, or something you would like to to share about car-buying, drop me a line at AutomatchConsulting@gmail.com and be sure to include your Kinja handle.