The Truth About Cars » wholesale http://www.thetruthaboutcars.com The Truth About Cars is dedicated to providing candid, unbiased automobile reviews and the latest in auto industry news. Thu, 24 Apr 2014 19:17:34 +0000 en-US hourly 1 http://wordpress.org/?v=3.8.1 The Truth About Cars is dedicated to providing candid, unbiased automobile reviews and the latest in auto industry news. The Truth About Cars no The Truth About Cars editors@ttac.com editors@ttac.com (The Truth About Cars) 2006-2009 The Truth About Cars The Truth About Cars is dedicated to providing candid, unbiased automobile reviews and the latest in auto industry news. The Truth About Cars » wholesale http://www.thetruthaboutcars.com/wp-content/themes/ttac-theme/images/logo.gif http://www.thetruthaboutcars.com Should You Sell Your Car At Carmax? http://www.thetruthaboutcars.com/2014/03/should-you-sell-your-car-at-carmax/ http://www.thetruthaboutcars.com/2014/03/should-you-sell-your-car-at-carmax/#comments Fri, 07 Mar 2014 10:00:14 +0000 http://www.thetruthaboutcars.com/?p=766585 carmax

100,000 miles?

200,000 miles?

300,000 miles?

Everyone has a certain point with their daily driver when they would rather see money back in their pocket, instead of seeing more money fall out of their pocket.

Time marches on. That old clunker loses it’s endearing qualities and then, what do you do?

Well, the answer depends a lot on what type of vehicle you’re trying to sell… which is why I’m introducing Carmax’s wholesale operations into this write-up.

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A lot of us are already familiar with Carmax’s retail operation.

No-haggle pricing. No hard sells or bait-and-switch tactics. The foundation for what made Saturn such a successful new car brand back in the 1990′s has been refined, improved and eclipsed by Carmax.

Like em’ or hate em’, Carmax is now the official used car Goliath of the auto industry.

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This article from Automotive News does a great job of highlighting the retail side of their success. Carmax is now twice the size of second-place Autonation, and larger than the third, fourth, and fifth place automotive retailers combined. If Carmax manages to stay on track with a forecasted 500,000 units sold for 2014, and maintains their $2,150 in net profit per unit, they will likely eclipse over a billion dollars in profits… just with their retail operations.

That first billion is the one everyone here is already familiar with. However it’s the other side of their business, the wholesale side, that’s proven to be the more consistent money-maker during good times and bad.

This is how it works.

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You are tired of your car. More times than not, it has some type of problem that is either expensive or elusive. You have probably spent a fair penny trying to solve that issue, and even if you succeeded, you are weary of having to deal with yet another one down the road.

Enter Carmax. Have you ever noticed how much money Carmax spends on radio advertising? That little 30 second spiel about bringing your car in and getting treated right is more than just a hokey way of trying to get you in their door.

It’s arbitrage, with a churn that now numbers close to 7,000 vehicles.

Every… single.. week…

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Carmax inspects your vehicle. Appraises it’s value. Successfully buys it (or at least plants the seed for further business), and then they does something that is unique to automotive retailers.

They have weekly auctions for all of these vehicles. Wholesale auctions frequented by dealers who sometimes travel long distances to buy the very same cars that you are tired of driving.

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On average, a Carmax auction gets more eyeballs per vehicle basis anyone else. An auction with 100 vehicles will often have more than 100 dealers who are ready to bid up and buy all those vehicles.

It’s a free market, and because Carmax eliminates uncertainty by disclosing major defects to this dealer audience, they get a premium return for much of what they sell.

If the engine or transmission has mechanical issues. If there is frame damage or a salvage title, Carmax will disclose that issue in writing to all dealers before the sale.

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Even if it’s a $500 vehicle, you can dispute the vehicle if there was a major defect that wasn’t disclosed. I’ve done it successfully in the past many times and so have thousands of dealers who attend their sales. No system is perfect. But Carmax’s selling policy is designed to eliminate those uncertainties and provide disclosure with both the high end car, and the beater car.

That’s where you, the public, comes into the mix. Because Carmax can get the premium return along with a seller fee of about $165 for each vehicle sold, Carmax can pay more for certain cars than other dealers.

What types? In my experiences, Carmax tends to offer a solid edge to consumers in three distinct areas.

1) The unpopular car with expensive mechanical issues.

2) The Craigslist nightmare car.

3) The “I need money right now!” car.

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You may notice that these are the first two types are cars that few public individuals want to buy in the first place. That five year old Chevy Aveo with a bad automatic transmission, and a 25 year old Honda that looks like it got into a fight and lost, will have one thing in common.

They will both be lowballed by the general public. Once you put that Aveo online for $3000, someone will offer you $1500 over the phone and then not show up.

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That 1990 Honda Accord which has been driven 356,168 miles? Someone’s kid or an aspiring scammer is going to light up your cell phone with a never-ending torrent of stupid pointless questions.

“Is your car a diesel?” says the guy who doesn’t understand that the letters g-a-s do not equate to d-i-e-s-e-l.

“Is there anything wrong with it?” “Is it an automatic?” “What’s the least you’ll take for it?” “Can you drive it to my place?” “Um… Give me your address!”

It’s this moron brigade that helps Carmax make hundreds of millions of dollars. By giving you the opportunity to not deal with them, and giving dealers the opportunity to capitalize on your automotive misery.

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There’s also a more lucrative side for those dealers that visit these auctions. That Aveo I mentioned earlier? It can be bought for $2300. Then it will be fixed with a cheap tranny found through car-part.com, and then financed at $500 down and $260 a month for 36 months.

The sub-prime side of the car market can help a dealer more than double his money over the course of a few years. Not risk-free mind you, but the Carmax auctions provide them with a golden opportunity to buy 20 or 30 low-priced vehicles a week that actually come with mechanical disclosures.

Once you know what you’re buying and have the means to it marketable, ¬†your risk of failure goes down substantially. This, along with the push of immediate competition, motivates dealers to pay more money for your impaired vehicle.

Nobody else does this when it comes to cheap older cars.

The creation of a free market with thousands of used vehicles, and fair disclosures, will likely net Carmax well over $300 million in profits by the end of this fiscal year.

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The average unit garners a little less than $900 in profit. Subtract Carmax’s seller fee of about $200, and you’re looking at only about a $700 spread on average between what Carmax will offer you, and what a large free market will pay for your vehicle.

Is that a better return than you will find on Craigslist, Autotrader, or a nearby car dealer? In some cases, without a doubt. The greater the uncertainty about the value of a product, the less an unknowledgeable person (or greedy person) will offer for it.

Personally, I would test out all of these avenues. If Carmax offers the best price, take it.

That is unless you live in northwest Georgia. In which case the address to my dealership is…

 

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Auction Day: Seconds! http://www.thetruthaboutcars.com/2013/03/auction-day-seconds/ http://www.thetruthaboutcars.com/2013/03/auction-day-seconds/#comments Mon, 11 Mar 2013 19:36:42 +0000 http://www.thetruthaboutcars.com/?p=480779

There comes a time when the prices for used cars at the auto auctions go the way of an exuberant bubble.

A small army of consumers get their tax refunds. The car lots wake up from their winter slumber, and values for vehicles go the netheregions of the human imagination.

I sell cars during this time, not buy them. In the last three months of every year I will usually buy a lot to avoid the tax time market prices. Sometimes as many as 12 vehicles in a day. But when tax season comes, I buy a chosen few and sell them by the dozen.

Then, after the buying frenzy begins to ever slowly ebb, there will be a welcome break in those hedonistic valuations. Where instead of winding up $1000 to $1500 behind the selling price, I wind up second to another bidder. Almost always to a guy who has been buying cars for a long time. Today was that day.

My first second was this 1991 Acura Integra. Now a lot of you folks will quickly realize that this vehicle is old enough to buy itself a drink, and you would be right. But age in a rust free climate that offers smooth roads is not that big of a deal.

The exterior? $260 paint job. The interior was presentable. A/C was fine. However the clutch was not shifting right, the big fartcan back muffler was a bit of a negative ding, and the hatch area had barely no semblance of the ultra-thin Acura fabric. The odometer showed 164k miles… which was probably inaccurate. I only bid up to $700 and watched a wholesaler outbid me at $750.

These sell quite well once they’re cleaned up. But I’m sure this one would have needed to be shucked to a paint shop, a mechanic shop, and an upholstery shop between the auction and the retail lot. Such time issues have a big hidden cost in our business and if you find another nasty surprise in that process, you can wind up ‘polishing a turd’. So this one simply went down the pipe.

Then we have the most heavily depreciate midsized car of the modern day. A Mitsubishi Galant. This 2009 model had 123,791 miles, and although the trunklid mentioned an ES trim level, apparently an ES in the rental happy Galant world only means alloy wheels as an option.

These lower trim vehicles usually sit at my lot for a bit. Cloth interiors. More than 120k… but an 09 model. I stopped bidding at $4900 for the sole reason that I usually can’t get the same margins with a higher cost vehicle with lower feature content. The final bid was $5000, and given that I already have several Tauruses and 3.5 Liter Intrepids that fit this bill at a far lower acquisiton cost, I can’t say I regret this decision.

Now this one was a gritting of the teeth moment. A 2007 GMC Canyon Work Truck with 111k and nothing too special about it. Except for the automatic. Late model, compact, automatic pickups are insanely easy to finance and this one had the added benefit of some paint transfer on the fenders that a less experienced buyer would falsely see as a permanent issue.

I bid up to $4500, and a friend of mine who buys up trucks was standing near me and bid $4600. I had to invoke King’s Rule and give him the favor of bowing out. In exchange for him looking out for me during the next go around. Hopefully that happens and I don’t wind up in a dogfight.

Finally we had the transportation equivalent of dog food go through the block. A 1999 Saturn SL. Based out. 5-speed. Perfect 35+ highway miles per gallon transportation for those folks who subscribe to the common practices of penny pinching and personal parsimony. I always have several of these on the road. Although the 5-speed is often a more challenging sale here in the Atlanta ex-urbs.

I showed a fist and held the bid at $1000. Waited for a few seconds. Then. Damn! Someone jumped in and I bid it up two more times before letting it go to some other nearby shadow for $1500. Typically I try to keep my costs under $2000 for a stickshift equipped basic vehicle, and this one would have likely cut it close once you added the buyers fee and the need for new rubber all the way around.

There was a ton of other stuff today. Fewer buyers came to the sale. But those who did show up bid all the money in the world. So if you’re in the market for a 1999 Lexus LS400 in clean condition and only 117k miles, you are looking at nearly $8000. Wholesale. If that sounds insane to you, just think about the financing terms that will be applied towards that vehicle. I’m seeing $1500 down. $80 a week for at least 36 months. Maybe even 48 months.

 

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