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How Much Do Dealers Pay for Used Cars?
Have you ever wondered how much dealers pay for used cars? As if buying a car wasn’t tricky enough, the used car market is somehow even more mysterious than the new car market. As I always like to say, “no two used cars are the same,” and for that very reason, used car pricing is not an exact science.
Unlike new vehicles, used cars don’t have a Manufacturer’s Suggested Retail Price (MSRP), nor a Monroney label that tells you exactly how much each component of the vehicle costs (or at least should cost). When you buy a used car, the price is generally set by a computer algorithm that looks at what other dealers have listed similar used cars for sale, and then suggests an amount to the dealer.
Like I’ve talked about in the past, as a general rule of thumb, dealers mark up their used car inventory a few thousand dollars over their cost. This is far from a hard and fast rule however, as some used cars have been known to net dealers five figures (or more) in profit.
Today I want to focus on a technique you can use to estimate a dealer’s cost to own a particular used car. Let’s dive in!
How do car dealers source used car inventory?
Before we get too into the weeds on how much dealers pay for used cars, I want to take a moment to share with you the four ways car dealers source their used car inventory. By this point you are familiar with the concept of a Used Car Manager. This is the staff member who is responsible for all used car sales at a dealership. They’ll source their inventory from four places:
- Customer trade-in
- Wholesale auctions
- Direct from wholesalers
- Trades with other dealers
The two primary sources are customer trade-ins and wholesale dealer auctions. Some dealers also get used cars directly from wholesalers, and occasionally dealerships have been known to “swap” aging units from one store to another to see if the other dealer has better luck selling the car.
For our purposes we’ll be focusing on estimating how much dealers pay for used cars from trade-in and auctions, since those are the two highest volume sources of inventory.
What are dealer costs for used cars?
There are certain costs associated with preparing a used vehicle for sale, aka getting it “retail ready.” Some costs are only associated with used vehicles purchased at auction, and don’t apply to trade-ins, but other costs are fixed, regardless of where they were sourced.
State inspection fee
Every vehicle a dealer sells must pass the state’s vehicle worthiness inspection. Fees associated with this inspection are non negotiable and differ from state to state. You can look up what a state inspection costs in your state to get an idea of what it costs a dealer, but on average we can say it’s around $80 per vehicle.
Reconditioning fee
Every used vehicle incurs some sort of reconditioning. Reconditioning is industry jargon for repairs and maintenance. Nearly all dealerships perform some type of reconditioning because it allows them to sell the vehicle at a higher price than if they sold it entirely “as is.” Dealers also like reconditioning their vehicles, because they are able to increase their revenues. What do I mean?
As a round number you can estimate with, a dealer will spend $1,500 (and sometimes a lot more) to recondition a used vehicle.
Detail fee
Dealers also must pay for a full detail of a used car before selling it. This typically is billed at $100 (or more) for a used car.
Auction fee
As the name suggests, this fee is associated with vehicles purchased at dealer auctions. Although each auction house charges a different price, a general rule of thumb is that a used car costs around $400 to buy from an auction.
Transportation fee
When a dealer buys a used car in a different region, they need to pay a transporter to get the vehicle back to their storefront. This amount varies widely, and will change depending on the number of vehicles being shipped and the distance traveled.
How Much Do Dealers Pay for Used Cars? Let’s Run Through an Example
Let’s walk through an example of how you can calculate an estimate as to how much a dealer paid for a used car. We’ll use a 2022 Toyota Camry LE listed for $15,995 to start. Get ready, you’re about to have a much better understanding of how much dealer pay for used cars.
The first thing you’ll want to do is locate the Kelley Blue Book trade-in value. Simply go to KBB, enter the vehicle information, and identify the low-end number they show.
In this case, the value is $14,791.00. Now, that’s not the actual price the dealer paid to get this car. If they sourced this car via a trade-in it’s likely they offered $13,000, or maybe $13,500. However if the dealer bought it at auction it’s likely it was 10% less than the KBB suggested value.
If the dealer bought this car at auction for $12,000, they then incurred $400 in auction fees, and $300 to transport it to their dealership. Add in $80 for the state inspection, and a conservative $1,500 in reconditioning work, plus $100 for the detail.
We’re up to $13,791.90 in cost for the dealer.
There is then one other factor we need to consider, which is called protected against commission (PAC). PAC is profit built into every car deal that is not commissionable to a salesperson. Dealers add in at least $500 in PAC on used cars, some more. This goes towards paying for non-revenue producing employees.
Now we are up to $14,291.90 in cost for this Camry LE that is listed for sale at $15,995.
If the vehicle was traded-in rather than bought at auction we can estimate that the dealer paid $14,971.00 to get it retail ready. As you can see, not a lot of margin is built into this price.
Free Car Buying Help Is Here
Tired of navigating the used car market and dealership hassles? We’re glad you found us! I’d like to share some free car buying tools with you.
Ready to outsmart the dealerships? Download your 100% free car buying cheat sheets today. From negotiating a deal to leasing a car the smart way, it’s all available for instant download. Get your cheat sheets today!
Used Cars: Should You Buy a Rental Car?
It goes without saying that there are many different sources you can use to buy a used car. From Carvana, to CarMax, to the dealer down the street, used cars are everywhere, but one often forgotten source of used cars are rental vehicles. Should you buy a rental car, and if you do, what do you need to know beforehand?
We’ll explore those topics (and more) below. Please bear in mind that I have never worked for a rental car company before. I have, however, spent 43 years in the retail automotive industry having sold hundreds of millions of dollars in new and used cars over my career.
Why do rental car companies sell their fleet?
It comes as little surprise that rental car companies sell portions of their fleet annually. The rental car business (especially pre-pandemic) was a fierce business that required rental car companies to primarily cater to business travelers (with the exception of economy rental car companies). This meant that companies like Hertz, Avis, and Enterprise needed to find competitive advantages that would sway business travellers to rent their cars instead of someone else’s.
This competition led to the practice of rental car companies cycling their fleet every two to three years. Customers would always be in a relatively “new” model year vehicle, and the rental company could also sell the car near the end of the manufacturer’s warranty period. This was a win-win for rental companies, and it also supports the fleet sales operations of major automotive manufacturers.
How do you know if you’re buying a rental car?
From a consumer perspective, it can be hard at first glance to know if you are inquiring about a rental car or not. Knowing if you should buy a rental car first means you need to confirm if a used car was previously titled as one!
There are two ways you can confirm if a vehicles you’re interested in is a rental car:
- Ask the dealer where they purchased the car; and
- Confirm by looking at the CarFax for the vehicle.
I highly recommend you review the CarFax (not the AutoCheck) of the vehicle to confirm it was a previous rental car.
Now, if you’re purchasing the vehicle directly from a rental car company (Hertz Auto Sales, for example), then you don’t have to worry if you’re dealing with a rental car or not — obviously you are!
What to look for when you buy a rental car
As with any used car purchase, there are a few general “rules of thumb” you should follow. When you’re thinking about buying a rental car in particular there are two things you should “look out for” during your due diligence.
Ask for the vehicle’s service record
If you’re buying directly from a rental car sales department, ask for the vehicle’s service record. This record will show you every single service and maintenance the vehicle has undertaken, and there is no acceptable reason why the seller should not share this information with you.
If you are buying from a dealership that purchased the rental vehicle at auction, then they may not have the full service history of the vehicle. If that’s the case, then you need to ask for …
Ask for repair orders
If you’re buying from a dealer that bought the vehicle from auction, then you’ll want to ask for documentation about what reconditioning they did on the vehicle and all applicable repair orders they filed. Dealers will typically be thrilled to show you this information, because it helps “seal the deal,” and the truth is, it certainly can help.
In order to sell a used vehicle (rental or not), a dealer must ensure that the vehicle passes state inspection. State inspections vary from state to state, however some requirements are the same across the board (ie tread depth on the tires, brake pads, etc.)
With this in mind, if you are able to review the reconditioning purchase orders and repair orders for the vehicle, you’ll have some immediate insight into what you are potentially getting yourself into.
Are used rental cars cheaper than other used cars?
Generally speaking, yes. Rental cars have a stigma attached to them, and because of that they have a lower selling price than other (comparable) vehicles. As an example, this includes service loaners (essentially rental cars that the dealer uses for customers whose cars are being serviced). A service loaner will have a higher asking price than a rental car (it should also have less miles than a rental car), and this is because there is less of a stigma associated with service loaners than there is with rental cars.
If you’re thinking about buying a car, you might enjoy this article: How Much Do Dealers Markup Used Cars?
Used rental cars have lower resale value
It’s important to recognize that rental cars will always have a lower resale value because of this stigma. The cheaper deal you are getting by buying a used rental car means that if you go to sell it in a few years it will be worth less than a comparable vehicle with the same amount of miles that was not a rental car.
As long as you understand this upfront, you should be a-okay.
Should you buy a rental car?
As you can see, there are a lot of factors to consider when contemplating if you should buy a rental car. I would highly recommend you consider rental cars if they fit into your budget, but be sure to secure a pre purchase inspection of any used vehicle you consider buying (unless it is certified pre-owned).
I’ve bought service loaners in the past, but never a rental car. If the CarFax looks good, the dealership can show you the repair orders, and the price is fair, I think buying a rental car can make a lot of sense for you.
What Can You Negotiate When Buying a Car?
There are so many moving pieces involved in a car deal, the price of the car, the taxes, the fees, what about your trade-in? The list goes on and on. Knowing what you can negotiate when buying a car is easier said than done.
Fortunately for you, after spending 43 years in the car business, I know the items you can (and can’t) negotiate when buying a car. This list is long, but then again, like I said before, there are a lot of moving pieces in a car deal!
Let’s jump in.
Is the MSRP negotiable?
No! The Manufacturer’s Suggested Retail Price (MSRP) is not negotiable. This is the factory’s recommended selling price for a vehicle. The actual selling price (as discussed below) is negotiable, but the MSRP, the suggested value the manufacturer sets for their vehicle, is not negotiable.
Is the destination charge listed on the window sticker negotiable?
No! The destination charge is not negotiable, it is a component of the MSRP. The manufacturer charges the dealership a fee (that you will see on the monroney label), and this fee is non negotiable.
Is the additional transportation fees on a dealer exchange negotiable?
Sometimes, but most likely not. If a dealer needs to dealer trade to get the vehicle you want to purchase, odds are they are going to charge you an additional fee for the transport of that vehicle. In some cases they won’t (if it’s local), but if the transport is substantial, don’t be surprised if the dealer adds a charge to your buyer’s order. That being said, is this negotiable? You can try, but nine times out of ten, the dealer will stick with the fee.
Is the selling price negotiable?
Yes, absolutely! The selling price is entirely negotiable, and you should read some of our guides on how we negotiate the best price possible on a car.
Dealers do not expect to sell most of their vehicles for MSRP, instead most expect their vehicles to sell considerably below that. Your negotiating skills will determine how low you’re able to get the dealer to go.
Is the selling price negotiable for a lease?
Yes! You can negotiate what the selling price for a lease is (known as the capitalized cost). My recommendation is to negotiate the selling price of the vehicle and then let the dealer know you want to lease instead of buy. This way you have already negotiated a fair selling price and there is less likelihood of “games” being played.
Is additional dealer mark up (ADM) negotiable?
Yes! Additional dealer markup is absolutely negotiable. If a vehicle is in short supply, or in high demand, dealers may increase the selling price of a vehicle above and beyond the MSRP. When dealers do this, they are essentially selling “air.” I mean that in the sense that they are charging more for nothing, except for the scarcity of the vehicle.
ADM will be shown on an addendum sticker attached to the vehicle, and if you aren’t visiting a dealership in person, you can ask for the addendum sticker in addition to the monroney label via email. The dealer will share it with you.
Are dealer installed accessories negotiable?
Yes! Dealers install accessories on nearly all of their inventory in an effort to increase the amount of profit per vehicle. If you’ve ever had a dealer tell you, “We add LoJack to every car. Sorry, we can’t take it off yours.” That may be true (that they install it on every car), but that doesn’t mean you must pay for it. You can, and should negotiate accessories.
Dealers do not expect all of their sales to include the full selling price of each accessory. With that in mind, you can play hardball on accessories, and work to get them to discount, or remove the line items from the buyers order all together.
Are Doc fees or processing fees negotiable?
Yes … sort of! Doc and processing fees are negotiable in the sense that you can get the dealer to remove their value from the selling price of the vehicle, but they will not actually remove (or discount) the line item from the buyer’s order. When asking “What can you negotiate when buying a car?”, doc fees are a bit of a gray area.
It’s odd, but for legal reasons dealers will not entirely remove (or even discount) a doc or processing fee for any customer. However, sometimes you can get them to negotiate the value of the doc fee off of the selling price.
Are the state, county and city tax fees negotiable?
No! State and local taxes are not negotiable. Dealers can’t “mark up” these line items, and unless you know someone in your local government, you’ll be hard pressed to negotiate these!
See the best and worst states to buy a car, taxes, fees and all.
Are the title and registration fees negotiable?
No! Title and registration fees are set by the state and are not negotiable.
Are electronic filing fees and bank lien fees negotiable?
No, but also maybe! I say no because in every dealership I have ever worked in, we simply charged the customer the flat fee. In theory though, a dealer could mark this up, and in that case you can consider negotiating it down. However, like I said before, I have never seen that in practice.
Are interest rates negotiable?
Yes! It’s well known in the industry that dealers add “pack” or “margin” into interest rate quotes for customers. Ask the dealer if you are getting the “buy rate.” Always be prepared to go with outside financing if the dealer doesn’t want to negotiate the rate.
Are lease money factor rates negotiable?
Yes! Money factor (the interest rate you pay on a lease) is negotiable as well. Again, ask for the “buy rate” when talking to the dealer.
Are credit tiers as determined by the bank negotiable?
Yes! If a dealer runs your credit and it comes back at tier 3 you can try and get a “tier bump” up to tier 2. This is entirely dependent on the relationship the Finance Manager has with the lender, and how hard they want to try to get you to the next tier.
Are prices of products sold in the Finance and Insurance negotiable?
Yes! All of the products sold in the F&I office are negotiable. Extended warranties, tire and wheel protection, etc, etc. Each of these items is negotiable. If a Finance Manager shows you a price of $2,500 for an extended warranty, do not hesitate to offer less than that.
Finance Managers, just like Sales Managers, have volume incentives. That means Finance Managers may take a “short deal” to hit their monthly incentive threshold.
Like I said at the beginning of this article, answering the “What can you negotiate when buying a car?” Question is easier said than done! It’s my hope that now you feel more confident negotiating the best possible car deal with the dealer.
How We Negotiate a Car Deal by Email (with Real Life Examples, Templates, and More!)
Buying a car online is more common today than ever before. As such, a lot of people ask us, “How do you negotiate a car deal over email?” Or, “How do you negotiate a car deal without going into the dealership?”
Those are two great questions, and today I thought we’d share exactly how we do it with you. Below you’ll find templates you can use for your own email outreach, and above you’ll find a video where we explain exactly what steps we take to negotiate a car deal via email, and how you can do the same.
Without further ado, let’s dive in!
Does how I negotiate change if it’s a new or used car?
- Yes! No two used cars are the same. That, plus the fact that a lot of dealerships have moved to “market-based” pricing of their used inventory, means it’s harder than ever to negotiate on a used car. That doesn’t mean it’s impossible, but for many dealerships their appetite to negotiate on a used car is less than on a new car.
- Negotiating a new car via email is a considerable amount of work, but much simpler. You’re going to find a handful of dealers that have the vehicle you’re looking for, and then you are going to send the email template we discuss in a little bit to each of them. After that you’ll get multiple out-the-door price quotes, and you’ll let each dealer know who has the lowest price, and ask them if they want to match it or beat it.
The 5 Car Brands You Can Negotiate Right Now
- Back to used cars, you’re going to have to convey a sense of urgency to get the dealer to budge off of their internet price, and that usually means telling them you’ll put a deposit down on the car ASAP if they discount it x%.
If you’re thinking about buying a car, you might enjoy this article if you haven’t read it already: How Much Do Dealers Markup Used Cars?
Who to email at the dealership?
- You can fill out an internet lead form, but don’t expect much to come from that. At most dealerships you’ll be required to put your phone number in the lead form and you will receive a phone call from an internet salesperson within 10 to 15 minutes.
- If entering a phone number isn’t required, don’t be surprised if you receive an email asking you for your phone number as an immediate response from the dealer.
- Your best bet is to work directly with a sales manager, or better yet, the general manager of the dealership. Why? Because they have the final decision making power, and they may delegate tasks back to a salesperson, but they’ll at least be able to negotiate with you, rather than wasting your time sending dozens of emails back and forth with the internet rep.
- You can get the GM’s email address from the internet salesperson, or, on many dealership websites they list their staff on a “team” page, and you can just grab it there.
What to say when you email them
- Negotiating via email isn’t rocket science. First and foremost, you need to be committed to the vehicle you’re reaching out about. I’m not saying you need to be ready to buy it at all costs, but you need to be in a mindset where you would actually buy the car should the dealer be able to make a fair deal with you.
- Send an email that looks something like this:
- What makes this email work?
- It’s friendly.
- It’s straightforward and to the point.
- We’ve made it clear which vehicle we’re interested in and what our budget is.
- We’ve built credibility (something you can do, even if you don’t have 43 years of dealership experience).
- What makes this email work?
- Ask for the detailed out-the-door price, and tell the dealer your zip code so that they can run taxes, title, and registration for your locale.
- Tell the dealer about any manufacturer incentives you qualify for.
- Tell the dealer what your timeline is.
- Again, be friendly.
What to expect as a response
- There are two types of responses you’ll encounter:
- Friendly and want to make a deal.
- When can you come into the dealership?
- You’ll mitigate this by working directly with the GM.
How to get a lower price
- Persistence, and holding your ground. I wish there was more to it, but that’s the truth. The whole reason why you need to reach out to so many dealerships initially is because you need leverage to work dealers against one another.
The template
Here is the initial email template we use when we negotiate a car by email.
[NAME],
Good morning,
My name is [name] and I am in the market for a car. I have been coached by Ray Shefska of CarEdge. Here is a link to their website: https://caredge.com/. This will give you a little insight into how much I understand about the process. I want nothing from your dealership other than a competitive price and an ease of doing business.
My zip code is 08054, and I am looking to purchase the following:
2023 Honda Odyssey in the Touring Trim. My preferred color is Red Scarlet Pearl but the Platinum White Pearl is also acceptable. I presently own a 2011 Accord and a 2016 Pilot, so I will qualify for Honda Owner Loyalty. I am prepared to pay cash but would entertain financing if that would offer a better out the door price. I am looking to take delivery by month end at the latest. I would move sooner if the deal warrants it.
Please provide me with your best detailed out the door price including all fees and please be competitive as I am contacting several dealers on his behalf within a 75 mile radius.
Thanks so much and I look forward to hearing back from you.
All the best,
[name]
FREE Car Buying Help Is Here!
Ready to outsmart the dealerships? Download your 100% free car buying cheat sheets today. From negotiating a deal to leasing a car the smart way, it’s all available for instant download. Get your cheat sheets today!
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Out-the-Door Price: The Number You Should Really Be Negotiating
Click here to calculate your out-the-door price with our free calculator!
Understanding the true cost of a car can be challenging, but the key lies in knowing the out-the-door price, which includes all additional fees and charges. To ensure you have a clear understanding of the total cost, familiarize yourself with the concept of the out-the-door price, and use our free calculator to estimate the final amount.
The out-the-door price is more than just the sticker price—it includes the vehicle’s selling price, taxes, title, registration, doc fees, and any dealer add-ons or accessories. By focusing on this comprehensive price, you can avoid unexpected charges and negotiate better deals with dealerships.
CarEdge is here to help you navigate the car buying process with ease. Check out our free out-the-door price calculator to estimate the true cost of your next vehicle purchase and ensure you’re getting the best deal possible.
Read on to learn more about what all is factored into the OTD price.
The components of an out-the-door price
Imagine you were buying your groceries and when you went to checkout the cashier told you that the strawberries were $4, but that the container they came in was an additional $1, and there was a “grocer fee” for stocking the strawberries of an additional $.25. Your $4 strawberries just became $5.25 strawberries.
If that was reality, you’d probably be pretty frustrated with the grocery store. “Why didn’t they just advertise the price as $5.25, instead of $4.”
Welcome to the world of buying a car! Dealerships for decades have advertised prices for cars that simply aren’t true. The total cost to purchase a vehicle is its out-the-door price, and the components that make up an OTD price are as follows.
Selling price
The selling price of a vehicle is the first piece to our “out-the-door” puzzle. The selling price is the amount both parties (customer and salesperson) have agreed to in order to make a transaction happen.
For example, if you see an SUV online listed for $39,900, and you contact the dealer and negotiate the price to $37,750, that would be your agreed to selling price.
This is not the total out-the-door price.
Taxes
In most states (with the exception of Delaware, Montana, New Hampshire, and Oregon) your purchase will be subject to sales tax. Sales tax is calculated on the zipcode level, because in many locales there are state sales taxes and then also county sales tax. There are also some regions that charge an additional vehicle tax (Arizona, for example).
Every dealership has software that allows them to calculate what the total tax amount will be on your purchase. Ask the dealer for this amount, as it is the second component of our out-the-door price. Even if you are buying a car out of state, you can still have the dealer run your taxes for your home state, most have the software to do that.
Title
If you’re purchasing a car in the United States, and you want to own it legally, you need it to be titled in your name. Each state charges a fee when you request a title. Although it is usually nominal (in most states just a few dollars), it is another charge you need to be aware of to calculate your total out-the-door price.
Keep in mind that our free Out-the-Door Price Estimator will tell you what your state’s title fee is. I recommend referencing that when you review what the dealership shares with you.
Registration
Another fee from your state government is the registration fee, which is a charge to register your vehicle in your name. Registration fees vary greatly from state to state, with some states charging a flat fee, and others basing their charge on the weight, age, or even horsepower that your vehicle produces.
The registration fee typically includes license plates (sometimes referred to as “tags”). There should not be a separate “tag” fee in most states.
Doc fee
A dealer fee that is never disclosed until you ask for the out-the-door price is the documentation fee. This fee is a pure profit center for dealers, but one you’ll be hard pressed to get them to remove.
Doc fees are not mandatory, but all dealers charge them. In many states they are capped. In California, the doc fee is capped at $80, but in Florida, doc fees can be over $1,000. Each dealer sets their own doc fee amount, and it is a major contributor to your total OTD price.
Be sure to check your state’s doc fee here.
Accessories
Frustratingly, many dealers add accessories to their inventory and then try and sell those to their customers. If you’ve ever had a dealer tell you “we tinted the windows, so that’ll be $995,” you’ve experienced this.
These may not be included in the price you initially negotiated, but they absolutely will be in the out-the-door price.
Get the most when you sell your car.
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How to use the out-the-door price
Now that you know what makes up the OTD price, it’s important to understand how to effectively use it.
When you negotiate the price on any car deal it is important to ask the dealer for the OTD price. Many dealers will list their lowest price so that they show up on the first page of websites like CarGurus and Autotrader, but then they’ll surprise you with massive doc fees and other accessories.
A dealership that shows up as a “bad deal” on CarGurus might actually have the better OTD price, and for that reason it’s always of the utmost importance that you focus your negotiating efforts on the out-the-door number and nothing else, since the internet price is really BS.
I wish I was kidding, but this is the sad reality of the industry, the price simply isn’t the price.
