Car Deal Canada

Car Dealership Used Car Markup

Car Dealership Used Car Markup

Buying a used car can be a daunting process. With so many makes, models and options to choose from, it’s hard enough just picking the right car for your needs and budget. But once you’ve found a vehicle you want, there’s another big factor to consider – the dealer’s markup. Most buyers expect dealers to make some profit reselling used cars, but just how much are they tacking on to the price? In some cases, excessive markups can mean overpaying by thousands of dollars. This guide will reveal the real costs behind dealer used car pricing so you can negotiate the best possible deal.

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Wholesale vs Retail Prices

Dealers acquire their used car inventory from a variety of sources, including wholesale auctions, trade-ins, lease returns, and purchases from private sellers. The price they pay to acquire each vehicle is known as the wholesale price.

To determine accurate wholesale pricing, dealers rely heavily on industry pricing guides like Black Book and Galves. These guides provide detailed wholesale, trade-in, and retail values for every make and model of used vehicle on the market. They take into account the vehicle’s year, mileage, condition, options and region to give dealers concrete wholesale numbers to work from.

For any given used car, Black Book will list the wholesale price a dealer could pay to acquire it, along with the recommended retail price they should list it for sale. The difference between acquisition cost (wholesale) and asking price (retail) represents the dealer’s gross profit margin on that particular vehicle.

Knowing the wholesale vs retail pricing difference on specific makes and models helps dealers calculate appropriate markups and set prices that maximize profit. This markup between wholesale acquisition and retail listing price is where dealers make their money on used vehicles.

 

Dealer Expenses

Dealerships incur a number of costs in acquiring and preparing used vehicles for sale. These expenses get factored into the pricing along with their desired profit margin.

One major cost is inspection and reconditioning. Dealerships will spend $500-$2000 inspecting each used car, making any needed repairs, and detailing it to look its best. This ensures the vehicles meet safety standards and are appealing to buyers.

For certified pre-owned vehicles, there are additional certification costs. The vehicle must pass a rigorous multi-point inspection and dealerships often extend the factory warranty. This CPO certification from the manufacturer costs thousands of dollars per vehicle.

There are also ongoing business expenses that must be covered, including:

 

  • Transportation costs to bring vehicles to the dealership
  • Advertising and marketing expenses to promote available inventory
  • Sales commissions paid to sales staff

 

While all business have costs, dealers build these expenses into their pricing models to maintain strong profit margins on used vehicle sales.

 

Average Markup Amount

So what is considered a reasonable markup amount for dealers on used vehicles? Industry standards indicate most target a 10-30% gross profit margin. This typically translates to dollar markups between $1500-$4000 on the average used car.

For example, if a dealer buys a used car at auction for $10,000 wholesale value, they may retail it for $13,000-$14,000 after reconditioning expenses. That equals a $3000-$4000 gross profit and a 23-30% gross margin on the vehicle.

On lower value vehicles purchased for $5000 wholesale, the markup may only be $1500-$2000 for a 20-30% margin. While on higher demand sports cars or specialty vehicles purchased at $50,000, the markup could be $5000-$10,000 for a 10-20% margin.

The main point is that industry averages show most dealers shooting for 10-30% profit margins on used vehicle sales. This translates to dollar markups of $1500-$4000 typically. Lower mileage, newer model mainstream vehicles in good condition tend to have markups on the higher side of that range, while older or high mileage cars may be marked up less.

 

Getting the Best Price

When it comes to negotiating the best possible price on a used car, preparation and research are key. Here are some tips to ensure you get a great deal:

 

First, spend time researching the vehicle’s value from multiple sources. Look up the trade-in value, market value, and retail value on sites like Kelley Blue Book and Edmunds. This will give you a good baseline for where pricing should be.

Next, check pricing on similar vehicles for sale in your area. Look at both dealer listings and private party sales. Compare miles, options and condition so you know what a fair market price is for that particular car.

Once you’ve determined average pricing, inspect the specific vehicle carefully and note its condition, equipment, and mileage. Use the pricing guides to determine a fair purchase price based on its specifics. A car with lower miles and better condition deserves a higher price.

Now you can negotiate with the dealer, armed with third-party pricing information. Highlight competitive vehicles at lower prices and what wholesale values suggest. Politely ask for a lower price more in line with your research. Dealers expect educated buyers and will often discount pricing when presented with fair market data.

Remember, avoiding unnecessary fees and dealer add-ons can also help you score the absolute lowest price. Come prepared with pricing knowledge and negotiate firmly but fairly to get the best used car deal.

 

Avoiding Unnecessary Fees

When purchasing a used car from a dealership, it’s important to watch out for extra fees that can be tacked on to inflate the price. Some common fees to look out for include:

 

Doc fees: This fee covers the dealer’s administrative costs of processing paperwork and can range from $100-$500. These fees are negotiable and if they seem excessive for your area, don’t be afraid to push back.

 

Prep fees: Charged for getting a used car ready for sale, including inspections, detailing, mechanical work. Typically $200-$800 and also negotiable.

 

Advertising fees: Dealers sometimes try to recover the costs of online/print marketing by adding an ad fee. This should be included in the sales price.

 

When you get the full price breakdown, ask the dealer to explain each fee. Request an itemization so you know exactly what you’re paying for. Be ready to walk away if certain fees seem unreasonable or you’re given the runaround. With persistence and preparation, unnecessary extra fees can often be reduced or removed entirely.

 

Buying Certified Pre-Owned

Certified pre-owned (CPO) vehicles are popular options for used car buyers who want some extra peace of mind. These are late model used cars and trucks that have undergone a rigorous multi-point inspection by the dealer and come with an extended warranty. Manufacturers back these CPO vehicles with their own certification programs. While a CPO vehicle will cost more than an equivalent non-certified used car, some buyers find the extra cost worthwhile.

A certified pre-owned vehicle from a dealer could have a markup of $1,000-$3,000 over the same make and model without the CPO designation. That’s because the dealer does incur some reconditioning and certification expenses that justify a higher retail price. However, there’s still room for negotiation, especially if the vehicle has been sitting on the lot for a while. Compare prices for similar CPO and non-CPO versions of the vehicle you’re interested in to determine if the markup seems fair.

The extended warranty that comes with a CPO car is a big part of the value. Make sure to research the warranty details like length of coverage, deductible, and what components are covered. While dealers have more markup room on CPO used cars, you can still negotiate the best deal by leveraging competition and wholesale pricing data.

 

Online Pricing vs In-Person

With the rise of major online used car retailers like Carvana and Vroom, more shoppers are browsing inventory and getting price quotes online. Online prices may be lower upfront versus visiting a physical dealership lot. The convenience of shopping from home and even getting the vehicle delivered is appealing to many.

However, buying solely online does have some downsides. You lose the face-to-face interaction and ability to negotiate pricing in person. Dealers typically won’t come down too much on online pricing, since it’s already competitive. But in the dealership you have more leverage to negotiate based on nearby competition and your own financing.

Often the best approach is to combine both online and in-person shopping strategies. Research market prices and specific vehicles online first. This gives you a benchmark for pricing. Then visit the dealership in person and mention the competitive online pricing to negotiate the best deal. Taking the time to leverage both channels can lead to maximum savings.

 

Timing Your Purchase

Timing when you buy a used car can make a big difference in the price you’ll pay. Dealers are often more motivated to make deals at certain times of the month or year. Here are some tips on when to shop for the lowest prices:

 

The end and beginning of each month is usually the best time to get a bargain. Salespeople have monthly quotas to meet, so they’ll be more likely to accept a lower offer to get the sale.

Avoid major holiday weekends like Memorial Day, July 4th, and Labor Day when demand is high. With so many shoppers out, dealers won’t be discounting.

Shop in the off-season when business is slower. Late fall and winter are good times to get deals on convertibles, RVs, and motorcycles that don’t sell as well.

Look for used vehicle inventory that has been sitting for 60-90 days. The dealer will be more motivated to make a deal to free up cash.

Evenings and weekdays are generally better times to negotiate pricing. Weekends tend to be busier, so salespeople have less incentive to haggle.

 

Buying at the right time takes some planning, but can help you save hundreds or even thousands off the asking price. Do your homework on timing and you’ll drive away with the best bargain.

 

High-Demand Models Often Have Higher Markups

When shopping for a used vehicle, it’s important to note that high-demand models like trucks, SUVs, and certain luxury brands tend to have higher markups. This is simply due to the laws of supply and demand. When supply is low and demand is high, dealers have more flexibility to charge higher premiums.

Full-size pickup trucks remain top-sellers year after year, with limited inventory reaching dealers. Popular trucks like the Ford F-150, Chevy Silverado, and Ram 1500 may carry markups $3,000-$5,000 above wholesale pricing. Compact SUVs are also in short supply lately, allowing markups of $2,000 or more in many cases.

Luxury brands like Mercedes-Benz, BMW, Lexus, and Audi tend to have higher markups as well compared to non-luxury vehicles. Demand remains strong for these vehicles, while supply is constrained due to lower production numbers. Dealers know they can get top dollar for coveted luxury models.

If you have some flexibility in the types of vehicles you’re considering, you may be able to find better deals on more readily available sedans, hatchbacks, minivans and other less popular segments. The key is focusing more on value and pricing and less on whether it’s the latest hot model.

 

Conclusion

When shopping for a used car, it’s important to understand how dealers price their vehicles and the typical profit margins involved. While dealers need to cover their expenses and make a reasonable profit, huge markups can often be negotiated down with the right preparation and knowledge.

The key points to remember are that dealers pay wholesale prices at auctions or from trade-ins, then mark up those vehicles 10-30% typically for retail sale. That translates into $1,500 – $4,000 of gross profit in most cases. However, high demand models may have higher markups due to low supply and older, high mileage vehicles will have lower markups.

Doing your research on pricing ahead of time using resources like Black Book gives you the information needed to determine fair offer prices. You can then negotiate the best deal armed with wholesale values and what other dealers are asking for similar vehicles. Avoid getting talked into extra fees and dealer add-ons to maximize your savings.

While the dealership model leads to inherent markups, you can still get a great used car deal with the right preparation and negotiation approach. Now that you know what goes on behind the scenes, you can negotiate like a pro! Just be sure to do your homework before ever stepping foot in the dealership.

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Questions About Car Dealership Used Car Markup

Car dealerships in Canada typically mark up used cars between 10-30%, or $1,500 to $5,000 on average. However, some specialty or high-demand vehicles may be marked up more. Dealers need to make a profit to stay in business, but focus on volume over high markups on individual vehicles. When negotiating, research prices and know your budget to get the best deal.

On a $10,000 used car in Canada, expect a dealer markup between $1,000 to $3,000 typically. This represents a 10-30% gross profit margin for the dealer. Luxury or specialty vehicles may be marked up more. With preparation and reconditioning costs, the net profit is often less than the gross markup amount.

Most Canadian dealers have 10-20% wiggle room on used car pricing. So if you see a car listed for $15,000, the dealer likely has room to negotiate down to around $13,500 or possibly less. High-demand models have less room, while slow selling vehicles sit longer so dealers will discount more to sell.



The wholesale price dealers pay at auctions is not publicly available. But third-party services like CarCostCanada offer reports showing dealer invoice prices to help determine fair retail pricing. Another option is hiring a broker to access wholesale auction data and help negotiate the best possible used car deal on your behalf.



Canadian used car dealers average a 5-10% net profit margin typically. After covering reconditioning costs, most aim for $1,500 to $3,000+ in profit per used vehicle. High volume and turning over inventory quickly is more important than maximizing profits on individual vehicles for most dealers.

Canadian dealers can make an extra 0.5-2% by arranging used car financing, called a “spread”. By marking up the interest rate over the wholesale rate they get from lenders, dealers can add a few hundred to a thousand or more in profit through car loans.

The rise of online used retailers has increased market pricing transparency and competition. This puts pressure on traditional dealers to be more competitive on pricing and fees. While limited in Canada today, continued growth of online sales will likely make the used car buying process more efficient for consumers.

Selling privately typically yields $1,000+ more over trade-in value, but is more hassle. Consider a dealer trade-in if you dislike the process of meeting strangers, advertising, negotiating and handling paperwork of private sales. Get quotes from both to decide what works best for your needs.

Dealers typically pay 30-50% of potential private market resale value for trade-ins. This allows them room for refurbishing costs and profit when reselling your trade. Aim to sell privately instead, but weigh the extra effort and market risks against convenience of trading in at the dealership.

Yes, always get quotes from several Canadian dealers in your area before trading in a vehicle. Trade offers can vary by thousands of dollars between dealerships due to differences in resale outlet channels, current inventory needs, and how skilled their buyers are at valuing vehicles accurately.

Tips for getting the most trade-in value in Canada include: cleaning your car inside and out; fixing any mechanical or cosmetic issues; gathering service records to show diligent maintenance; removing non-critical accessories that don’t add value; and being flexible on the new car you’re buying to get the best overall package deal.

The best negotiating tactics include: being educated on pricing through research of local market rates; determining your target price beforehand; making a firm initial offer well below list price; citing competing vehicles or offers when negotiating; avoiding discussing monthly payments early on; and being willing to walk away if you can’t reach your target.

There is no way to find out exactly what a dealer paid for a specific used vehicle. The price they pay at auctions is proprietary information. Research fair market value for that model using pricing guides or services instead. Focus negotiations on comparable listings in your area to increase your leverage rather than what the dealer may have originally paid.

Yes, it is wise to spend $100-$200 to have any used vehicle professionally inspected prior to purchase in Canada, whether from a dealer or private seller. This allows an independent mechanic to identify any issues the dealer may have missed or not disclosed, protecting you from expensive repairs down the road.



To avoid excessive extra fees at Canadian dealers when buying used: negotiate an out-the-door price covering all mandatory costs first; resist optional extras like extended warranties; ask for fee caps in writing; be willing to walk out over excessive add-ons; and consider buying from a no-haggle dealer or private seller to avoid some fees entirely.

The best months to get a good deal on used cars in Canada are October to January when demand starts to slow after summer peak. Year-end clearance sales mean dealers are more motivated to move aging inventory. Tax refund season from February to April tends to spike prices back up as consumer buying power increases.

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