notso556 asked this in the New Car thread. I'd like to answer it here.
Is there a "break point", let's call it, where the dealer is looking at it as a "keeper" vs. a dog that will be wholesaled? I mean, mostly, in terms of age and mileage. I assume anything in poor condition is going down the road regardless of age and mileage.
This leads me to the 2nd question. If it is a "keeper", what sort of profit margin is the dealer looking to make on the sale of it......... percentage-wise?
And same question for the dog that goes to the auction.
I've touched on the dealers who only want to sell late model cars on their lot. These usually are the best of the best trade ins and "Program Cars"
What is a "Program Car" Well, it seems to have become a generic term to describe cars the are less than 3 years old and have less than 50,000 miles on it. The best place to get these cars are at auction when the factory has their "Factory Authorized Sale", usually once a month. Only new car dealers who have the factory name can attend. No one outside that circle can buy any of these cars (see above about a way around it). The cars run thru this auction are a combination of lease turn ins and fleet cars that were originally leased by large companies for their staff. Also included are cars that the executives drive, that their wives drive and (if high enough) their kids and moms drive. These are all leased thru their leasing company and are truly lease turn ins but they have a different driver than an over the road, regional sales manager has. Also, the factory sales staff that drive to all the dealers to visit monthly and many other jobs related to working for the factory. Lease returns are USUALLY serviced regularly and are not beat up but we never know for sure how any car was treated. These cars have a myriad of miles, they are not guaranteed to have less than 50,000 miles on them.
Many customer leases have a 48,000 mile term or the lessee goes way over on their mileage (and pays dearly), etc. So, like any auction it is truly "buyer beware". Since most dealers try to get the best condition cars with the lowest mileage they bid up the price on these cars. There is no KBB or NADA guidelines when dealers bid against each other for these cars. It's what one dealer is willing to pay for that particular car especially if it has great eye appeal or super low miles. These dealers are looking for those switch cars so if they over pay for these cars and still come in at a good amount under the new car, they are happy. I say this because many people ask why the used cars are nearly as much as the new ones. It's kind of like the used Glocks you see out there for sale.
The used Glocks cost nearly as much as a new Glock. Why? Because some people are OK with paying $100 less than new to get a like new Glock.
A really good Used Car dealer sells a lot of used cars for a good reason. This is the new car dealer who loves to sell used cars and the Used Car dealers who stand alone. They want to sell used cars because they make a lot of money selling them. However, to be successful, they have to sell nice, used cars.
Reliable used cars. Clean used cars. Popular used cars. A Used Car dealer will not survive very long if they sell junk or cars that are not reconditioned or cars that were abused and cleaned up and sold for top dollar. Kind of like putting lipstick on a pig. You may sell a bunch up front but when word gets around that you are selling junk you will not be selling used cars for very long at that location. Bottom line, to survive and to make the money you got into the business for, you just have to sell good, reliable and affordable cars and trucks. Bottom line.
As we discussed in the posts above, when you bring in a trade for appraisal, the first thing that comes into his mind is if he wants it for his lot. Every dealer or UCM has their own criteria for what goes on their lot. However, it usually has to look good, first and foremost. A Car may be the best runner you ever had but if it looks beat up, bruised and otherwise neglected, the dealer will not consider it for his lot. If it has that initial eye appeal and miles, he will then look deep into the rest of the car. If the UCM puts a trade in on the lot for sale, it has his signature on it in case it blows up in some way.
It is his reputation at stake on every car he puts out there for resale. It better be right. So, it has to be the right car at the right price to go on his lot.
What is the right mileage?
Well, let's talk mileage.
Other than overall condition, the mileage determines whether a car is worth a lot of money or if it is not wanted.
As has been mentioned, if you have less than 50,000 miles on the odometer, that's a good thing.
50,000 to 59,900 miles is still good but depending on the year, it could hurt the value. Most dealers love this mileage range due to the value. Nice cars at a discounted price.
60,000 to 69,900 miles is starting to bump the top tier dealers out. If the can sell a 36/36,000 warranty and stay under 100,000 mi it's good to go. These cars come in cheaper than the others, obviously, and are good "Ad" cars. Late model cars at a hot price.
70,ooo miles to 79,900 miles and the going gets tough. Generally, these days this is not a problem but back when used cars died at 100k miles, this was considered a risky area for used cars. IMO, the risky area starts to creep in at 120k miles but that's just me. Many dealers cut off their mileage at 69,900 for many reasons. Usually, a car with 69,000 miles needs all kinds of mechanical work. Nothing unusual. My tires usually lasted to 60 something miles. Brakes, the same. I don't do a lot of city, stop and go driving so that helps. If the car wasn't maintained properly, they begin to unwind at 70k or so miles. It starts to become a coin flip at 70k miles and most dealers don't want to ruin their reputation in selling a bad used car.
If you notice, I went up to the 900 mile at each stage, not 999. Believe me when I tell you, you will lose A LOT OF MONEY if your trade in turns from 69k to 70k miles. That last 100 miles before turning over needs to be there so the dealer can drive the car for reconditioning, going to a detail shop, for future test drives, etc. 69,900 is good, 69.975 reads 70,000 to a dealer at trade in.
Turning each decade mark costs a lot of money. Believe me. 49,900 may get you $10,000 for a trade ACV and 50, 001 will get you $9,000. Yes, those extra 101 miles can cost you $1000. Seriously. If you are thinking of trading soon and are coming up to a century mark, park the car.
Park it or take the chance of losing $1000. Remember how buyers drop the $995 in prices of trades and the car they want? (very real phenomenon).
The same applies to mileage. To a buyer, 50,001 miles and 59,900 are the same... 50k miles. That 9,000 miles are dropped like the $995 is.
Dealers and buyers only see the first 2 numbers.... 50. 50 something miles. 49,900 is 40 something miles, 50,001 is 50 something miles. Even though it is actually 101 miles different it is perceived as 10,000 miles different. Trust me on this. It is fact.
Also, warranties and lenders figure rates and terms and interest rates by mileage on used cars.
Your new (used) car has 49,000 miles on it? Ok, we can give you 4.9% for up to 72 months. Oh, your new (used) car has 50,001 miles? Well, we can go 60 months max at 5.9%. Yes, banks have tiers. Warranty companies have tiers. An ESC that costs (not sells) $475 with 49,900 miles on it costs $575 if it has 50,001 miles on it. If you bring it in too close to that turnover marker, you will not see the better value. 49,901 will be 50,000 and will cost you hundreds and maybe a thousand or more (depending on the type of car it is).
Now, with trucks being a huge part of the market today, truck mileage is totally different than car mileage. Diesels have an even higher cut off. A nice,
clean truck with under 120K miles on it will probably stay on the lot for sale if it is the same brand as the dealer. Trucks have proven to last longer and have such a utility value that a nice, used truck is always in demand. Truck prices hold a much better value than a car costing the same initial selling price.
Also, nice, older cars with low miles always have a place on a used car lot while late model cars with over 80k miles won't see the retail lot. Too many variables with a limited market (trucks excluded of course).
So, after eye appeal and mileage, other factors come in to play to determine if it's a retail piece, a wholesale piece or an auction piece.
(Auctions will be discussed further down).
A wholesale piece is a decent car that just falls below the criteria of that dealer's lot or is another brand. We all know how Chevy buyers feel about a Ford truck and vice-versa. A nice Ram is treated poorly at a Ford or Chevy dealer unless it is a dually and a diesel. Everyone loves those diesels! Always a market for any diesel with any miles.
