How Much Do Dealers Pay for Used Cars?

by Ray Shefska | Last updated Jul 31, 2025 | Car Selling, Dealership Operations, Trade-in, 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:

1. Customer trade-in
2. Wholesale auctions
3. Direct from wholesalers
4. 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.

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Why Do Cars Go to Auction? Here’s What Dealers Don’t Tell You

by Ray Shefska | Last updated Jul 31, 2025 | Car Selling, Dealership Operations, Trade-in, Used Cars

When you go to buy a car, don’t be surprised if the dealer you’re purchasing it from bought the car at an auction. The “ins and outs” of used car auctions remain unknown to many, however they aren’t too terribly complex. Many people have asked me “why do cars go to auction?”

The short answer for why cars go to auction is to improve dealership profitability.

Let’s explore how car dealerships work, and how you can make an informed decision armed with this knowledge.

The Top Reason Used Cars Go to Auctions

Car dealers are in the business of making money. When they can’t sell a car to a consumer quickly, it’s more profitable for them to sell that car to another dealer via an auction. Generally speaking, dealerships make most all their decisions based off of how it will impact their profitability.

As pre-owned inventory ages, dealers will often take those vehicles to the auction. Their goal is to turn that “dead” inventory into cash that can be used to buy other cars that they expect to sell faster. But why do dealers do this in the first place? What incentive do they have to get rid of “dead” inventory?

Most dealerships have strict pre-owned aging policies. This means that internal policies dictate how long a used car can stay on a dealership’s lot before it gets sent to the auction. A common practice in the industry is the 60 or 90 day rule.

If a used car isn’t sold within 60 or 90 days (this varies from dealer to dealer) management staff must get rid of the car. They have two options; either wholesale the car directly to another dealer, or more likely sell it at an auction.

Why Do New Cars Get Sent to Auction?

Sometimes dealerships will even send new cars that have not sold quickly enough to the auction. This doesn’t occur often, but it happens. The rationale is for dealerships to relieve themselves of excess new car inventory or aging new cars, and instead replace them with fresh merchandise that they think will sell more quickly to a consumer. The whole reason cars go to the auction is to ensure inventory balance at the dealership.

Cars go to used car auctions because dealers simply can’t sell them quickly enough to a customer at their storefront. Dealers are incentivized to sell cars sooner rather than later because of carrying-costs that diminish a cars profitability, and pressure from shareholders to show that they’re moving inventory quickly.

If a dealership isn’t turning their inventory it is a sign to shareholders that they aren’t as efficient or profitable as their peers. With inventory sitting on a lot, the dealer has a significant amount of capital tied up in cars that aren’t selling. That means their money isn’t making them as much profit as it could.

Other Reasons For Sending Cars to Auction

Dealership staff accumulate knowledge and experience over time. With that experience comes the ability to know which makes and models will or won’t sell at their dealership. Prior experience with certain makes and models may have shown that certain cars simply aren’t popular on their lot. Off to the auction they go.

This varies from dealer to dealer. Location can play a major role in determining which cars stay and which cars go. For example, a sports car that gets traded in to a rural dealership will likely get sent to auction.

Mismatched inventory? Send it to auction

Sometimes a dealership will trade a luxury car that is simply too expensive for their taste. Those cars will be sent to an auction that specializes in those types of vehicles.

Another reason why cars go to auction is that after inspecting a vehicle for road worthiness and determining how much it would cost to recondition the vehicle, the dealer may simply deem it too expensive. When that’s the case, off to the auction it goes.

Often times dealerships trade cars that are too old, or have too many miles. When this is the case, a dealer may have no real intention of keeping the car. Instead they simply ship the car off to the auction as soon as possible.

In Conclusion

As you can see, there are no shortage of reasons why cars go to auction. Dealerships send cars to the auction to get rid of aging inventory, because they just want cash to buy something different, or merely to balance their inventories for maximum return of investment. The reasons are as valid as they are varied, and the auctions remain a valuable tool for dealerships to use.

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