Tracking the Lot Time of Used Cars Can Save You Money
Going to visit a dealer on a rainy day or the third Sunday after a holiday might not help you get a better deal on a used car, but tracking how long it’s been sitting on the lot may work in your favor. Aged inventory takes up valuable lot space while interest adds up every day motivating most dealers to drop the price to sell it quickly.
Most cars arrive on a dealer lot arrive from wholesale auctions or customer trade-in and are paid out from dealer funds or by a loan through floorplan financing. As with most loans, interest and fees are paid until the loan is satisfied for the floorplan. Each day of interest cuts into the potential profit for a vehicle so dealers try to move inventory as quickly as possible.
Friends often tell me that they have seen the car they want sitting on a lot for a month or so and ask why it isn’t deeply discounted already since it’s been there for a long time in their eyes. Dealers have a slightly different definition of a long time on the lot and month old inventory is right in its sweet spot to sell. Generally speaking, dealers consider a unit as old inventory once it passes the 3 month mark.
The first round of pricing on a vehicle is usually set on the expensive end with the hope someone will come in who hasn’t researched the pricing or really wants that specific model — but as it’s set hopefully high, it only lasts for a couple of weeks. The price gets reduced closer to the market average around weeks 3 and 4 and stays in that range until it hits the 60 day mark. Some dealers reduce the price once more at this point. However, the biggest reductions usually occur once the car has been on the lot for 90 days.
Generally the vehicle gets reduced very close to cost once it hits the 90 day mark in the hope that it will sell without having to go to wholesale auction. Some dealers will send cars to auction on the first available date once they pass the 90 day threshold, but others may wait 120 or 150 days and try their chances to break even. This is the best period to buy the car as most dealers will be willing to sell it between the auction value and their cost so they can at least save on the auction fees. The risky part is that most vehicles will sell well before hitting this range and you may miss out on the vehicle you are looking for.
Certified Pre-Owned vehicles are a special case as they require a specific measure of reconditioning to be performed along with a certification fee of $500 to $2,500 to be paid to the manufacturer. In some cases, if these vehicles are slow sellers, the dealer may roll back the certification if the manufacturer allows it and sell it as a standard used car. Once the CPO certification is removed, the vehicle loses the attached warranty and the dealer is not required to pay the certification fee. There are exceptions to these guidelines as I have seen dealers stubbornly hold on to a vehicle at a set price because they have too much time or money invested into it and don’t want to feel the loss.
Knowing the general schedule is helpful but most people are not willing to drive by a dealership every week to record how long a car has been on the lot. In this case, using online tools is very helpful. An easy first check is to look at the Carfax report if it’s available as it will usually show an entry stating “Vehicle offered for sale” which will match the first day that the vehicle is available on the lot. I also like to use CarGurus.com as they show a breakdown of how long a vehicle has been listed there and a history of the price drops and increases.
Tracking the car price and waiting is beneficial if you are not in a hurry to buy or the car is plentiful, but the best path to purchase is to research a fair price and offer that to the dealer. If they do not accept your offer you can always leave them your contact information and tell them to contact you if the car does not sell and they drop the price.
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