By on July 14, 2016

Where's the transparency?

I always buy new. I know, I know.

There’s a financial wizard of the Internet around every corner, ready to pounce and scream “DEPRECIATING ASSET” at me. But the reality is that I — like most shoppers — like to get a good deal when I buy anything, and that includes five-figure investments. Also, like most car buyers, I feel that “good deal” really means “the dealer didn’t make a dime on me.” Yes, I know that car dealers need to make money on used car sales to stay in business (and to continue perpetuating the myth that they don’t make any money on new car sales), but that doesn’t mean I’m their mark. On a new car, I can know with 100-percent certainty if I got a good deal.

When one of my Twitter followers asked me why the dealer’s cost isn’t the starting point for negotiation on a car, I quickly replied (as I was walking to dinner) that “used cars have recon cost.” However, upon further reflection, I realized that’s just the tip of the iceberg and if a Twitter user didn’t know why used car costs are so nebulous, most of y’all probably don’t know either. Transparency on used cars simply doesn’t exist, and it never will. Here’s why.

Unlike new cars on which anybody with an internet connection can get the invoice price, a used car’s price is more difficult to pin down. It’s not just as simple as looking at the transaction price at the auction or the trade-in value given to the car’s original owner. Several other factors come into play when determining how much a dealership has invested in the cost of a used car.

There are several paths that a used car can take on the way to the dealership, but the most typical ones are trade-ins and auctions. When a dealer acquires a vehicle, it’s quite rare that it’s in “showroom-ready” condition. Nearly all used cars require reconditioning, or “recon” for short. At the very least, this includes tires and brake pads, but it can mean much more and done differently depending on the dealer.

A franchise store that is buying a late-model car from its own marque may choose to bring the car all the way up to Certified Pre-Owned status. Dealers have to pay a fee to the OEM to certify a car, a quite lengthy and expensive process. Not all cars will qualify, either, depending on condition and mileage (pro tip: if you see a late-model used car on a franchise lot that isn’t certified, run very fast in the other direction). There’s significant cost involved in making a car CPO, so there is a significant delta between what the dealer paid for the car and the dealer’s real cost of that car. So while you might think that a dealer would make more money on CPO, because it’s typically more expensive, the truth is that many franchise stores don’t care for selling CPO, and some don’t do it at all. In fact, the only reason that many dealers sell CPO is because the OEM requires it to receive quarterly and annual bonuses.

An independent dealer might be more likely just to slap an “AS IS” sticker on the window and sell it directly to the customer with little to no reconditioning whatsoever. I remember working with a truck store in Michigan that did exactly that. It would even tell the customer that the truck had some specific problems and then let the customer decide if he wanted to buy the truck and pay to have the issues fixed.

So whatever the cost a dealer paid for the car on trade, add reconditioning costs to that, anywhere from $350-2,000+. Keep in mind, most franchise stores’ service departments charge the used car department retail prices on labor and parts. It’s common for a service manager to call the Used Car Manager his “best customer.”

Why the rush to get inventory on the lot? Because holding costs are a bitch. What’s a holding cost? So glad that you asked.

A holding cost is the amount of money that it costs a dealer to actually have the car on the lot. Go read this and come back. Most dealers don’t know how to actually calculate holding costs. Some of them think that if they don’t floorplan, then they don’t have any holding cost at all. I call those people morons.

So the longer it takes to recon a car, the greater the holding cost. Smart dealers try to get the car on the lot within 72 hours of arrival. If you’re trying to think of how this impacts the “cost” of the car, figure on adding a minimum of $30 a day to the original cost, plus recon.

Smart dealers factor in advertising costs as well. The average advertising cost of a used car is about $150 per car, but that can vary depending upon how much traditional and digital advertising the dealership is doing.

As you can see, it’s not as simple as the dealer just turning his computer screen around and pointing to a number. If he did that, he’d assuredly be selling you the car far below his real cost.

So how can you battle all of this as a customer? It’s easy to get frustrated. If the dealer isn’t going to be transparent with you, you have no incentive to be transparent in return. However, you’re not doing yourself any favors by saying, “Well, I don’t know if I’m financing or paying cash,” or, “I won’t tell you if I have a trade until after you give me a price for my car.” It’s not the salesman’s fault he or she can’t give you a cost on the used car. Dealers simply aren’t adept at calculating their real money invested in used cars.

Use tools like KBB and Black Book to determine the market value of a car, then ask the dealer to see the invoice for performed recon work — trust me, there’s one in the accounting office even if they say there isn’t. Ask for a PPI and make sure that there’s no other work that needs to be done. Use third-party sites to compare prices. Go to CarGurus and see how long the car’s been on the lot.

But even with all that, it’s still tough to know if you’re getting a great deal. Which is why, at the end of the day, I’ll always feel more comfortable buying new.

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88 Comments on “Bark’s Bites: On Used Cars, Transparency Is A Myth...”


  • avatar
    MrGreenMan

    If you want the real smoking deal on a used car, you wind up purchasing it without much reconditioning – e.g., you buy a Ford at a Buick dealer, a Lincoln at a Chevy dealer, and they just want it gone because they don’t know what to do with it, they took it recently on a trade, etc.

    Then, of course, you put your three grand of reconditioning into it yourself – new brakes, new tires, new shocks, new floor mats, new fluids all around.

    • 0 avatar
      dividebytube

      I got my 2009 Mini Clubman S this way – bought it used at a Dodge dealership, who had done no reconditioning to it at all. It had been traded in just the day before, with not even a single pic up on their website. The poor car had some badly done vinyl stickers, the Rebel Alliance, and was almost due for it’s 60k mile work. Walked out $1500 less than their asking price, taking it as-is and about $2500 less than the nebulous blue book.

  • avatar

    The hardest part about buying ANYTHING USED is figuring out why the last person got rid of it.

    • 0 avatar
      Scoutdude

      Increasingly it is because the lease is up.

    • 0 avatar
      Funky

      Yep. This. One never knows for sure. Some dealers will ask the person trading in the vehicle if they are willing to provide a reference, if needed, for the traded used vehicle. Even if the previous owner is willing to do this, one should face the situation with suspicion.

    • 0 avatar
      duffman13

      For me 99% of the time it’s going to be because I just got tired of it. I’d imagine that a lot of people are similar.

      I think most cars fall into one of the following categories though:

      sub-30k – the lease is up
      30-60k – don’t want to drive something out of warranty
      60-80k – probably just tired of it
      80-100k – want to get rid of it before major maintenance is due
      100k+ is a crapshoot. Get a PPI because your chances that the car is a basket case are a lot higher.

    • 0 avatar
      Higheriq

      The only times I’ve ever bought used are those times when I can get “the story”. Being shrewd enough and when buying the right specific car, it is possible to get “the story” even when buying from a dealer. But too often, even most private sellers won’t have the story – when they don’t, walk away.

      Dealers buy used cars based on average prices, the trick is to get them to sell for less than average.

  • avatar
    eggsalad

    “(pro tip: if you see a late-model used car on a franchise lot that isn’t certified, run very fast in the other direction). . . . So while you might think that a dealer would make more money on CPO, because it’s typically more expensive, the truth is that many franchise stores don’t care for selling CPO, and some don’t do it at all. ”

    Seems like contradictory information. CPO cars cost more than those without certification. Maybe the “CPO” tag is worth it, maybe not. So why should I run away screaming from a non-CPO car on a marque dealer’s lot?

    When I wound up looking at Chevrolets, there just aren’t many CPO cars at all. Maybe dealers don’t see the value in the CPO cert, or maybe they want to sell cars cheaper without the cert.

    I bought my ’13 Sonic from a Chevy dealer, without certification. Made absolutely no difference to me.

    • 0 avatar

      Dealers are forced to sell CPO to get their OEM bonuses. Most of them don’t like doing it.

      • 0 avatar
        Scoutdude

        Or they are forced to have a minimum number of CPO vehicles to be able to attend the factory remarketing auctions which of course is the source for many of those “low mile late model” cars.

    • 0 avatar
      dal20402

      When shopping for Lexuses (twice) I saw absolutely no difference between those the dealer marked as CPO and those they didn’t. Some of the CPO vehicles had defects, some of the non-CPO vehicles were fine. I think they just didn’t want to go through the process on any more vehicles than they were required to.

      • 0 avatar
        slance66

        CPO has no value in very low mileage very new used cars. A one year old Lexus with 9k on it? Who cares about CPO. There’s no wear items to replace anyway.

        Three years old and 38k, now we are in the realm of significant differences. For those cars, I’m CPO only at this point. Tried one without at an independent dealer and was not happy with the result. My CPO BMW was flawless for several years.

        • 0 avatar

          Don’t a lot of CPO cars include an extended warranty? Which might not be a huge deal on the hypothetical Lexus, but could be a major selling point on a BMW or Range Rover.

          • 0 avatar

            That’s the whole point of CPO.

          • 0 avatar
            motorrad

            My CPO Fit had a 100K warranty and only 8K miles. I think new Hondas only have a 36K warranty.

          • 0 avatar
            ToddAtlasF1

            On a recent shopping trip for a low quality German luxury car, we were told that the used one equipped like the new one we wanted that wasn’t in stock wasn’t CPO, but it would be given the CPO treatment if we so desired. The policy at this large-market dealer of expensive German junk was to leave cars uncertified until a buyer agreed to pay for the process.

  • avatar
    markf

    Good read. With some of the prices people and dealers are asking on used cars I have resigned myself to joining the just buy it new crowd. I have heard several reasons for the cost of used cars, I don’t really have an opinion on any of them but for a late model Honda, Toyota (trucks) or Acura it seems you are better off buying or leasing new.

    I do have to ask like he poster above why are folks getting rid of 1-2 y/o cars? Issues? Repo? No test drive and hated it?

    • 0 avatar
      pdieten

      The then-2-year-old car I bought a few years ago was off corporate lease. Ex-salesman’s car so miles too high to CPO, and had been sitting on the lot for 5 months.

      Car was a terrific deal, less than half of original MSRP, had been kept maintained and is still stone reliable.

    • 0 avatar
      Scoutdude

      The majority of those 1-2 year old cars you find on dealer’s lots came from lease and rental returns as well as company cars.

      For example we had the recent story about the GM employee who had his pick of many of their vehicles and wonder what the smart thing to do was. He put 30K per year on the vehicle so he will get a new one every 4 months. So his car will show up on the lot when it is just a few months old but with that 10K miles.

  • avatar
    PrincipalDan

    Most dealers don’t know how to actually calculate holding costs. Some of them think that if they don’t floorplan, then they don’t have any holding cost at all. I call those people morons.

    I find it hard to believe that there are dealers who don’t know by the day what it costs to have the car just sitting there on the used car lot NOT selling. But then again it is so easy to underestimate the stupidity of other people.

    I once had a vehicle in for lengthy service and the local Buick/GMC dealer wanted to give me a loaner off the used car lot. I had glanced at the lot and asked them for the Crown Victoria that was sitting there. I got the keys and quickly realized that it had inoperable AC (in mid July). The salesman who was assisting me was a member of the family that owned the place. You should have heard him lay into the used car department and the service department about having a car with busted AC sitting on the lot.

  • avatar
    dwford

    One way a dealer can have a radically different cost difference between 2 seemly identical cars is the trade in value the dealer gave to the trading customer. If the dealer had to overpay on the trade to close the deal, he now owns that car for probably too much money, and may hold out on selling it until the “right” customer comes along – i.e. Someone he can overcharge. You, as a B&B, would not fit that bill.

    • 0 avatar
      dal20402

      That’s a dealer who doesn’t understand the concept of sunk cost.

    • 0 avatar
      Scoutdude

      If the dealer overpaid to close the deal on another car that money is usually accounted for as a cost of closing the deal on the car they sold as part of the transaction. Fact is if they overpaid for your trade there was money left on the table in the purchase side of the transaction.

      Of course there are dealers who will push that cost to the used car side as a tactic to make the new car numbers look better and put the squeeze on the used car manager, ie tell him his profit margins are too low and he better get with the program if he wants to keep being the used car manager.

      Companies do that all the time. Your local Autozone is unlikely to show a real economic profit, yet they stay in business because their transfer pricing it set up so the profit is shown at the corporate level instead of the store level. That is why the store manager’s office at companies like that have a revolving door. Keeps people from staying around and getting a raise or earning that bonus.

  • avatar
    FormerFF

    There is a transaction cost in buying a car. Over the long run, the best way to minimize the amount you spend. is to buy a car you can drive for a long time and keep it for a long time.

    As far as that “depreciating asset” thing and how much less your car is worth the day after your buy it, the only important numbers are what you pay for it, and what you’ll get when you sell it. If you’re planning on selling your new car a month after you buy it, than that initial depreciation is important. But, since no one does that, it isn’t relevant. If you are planning on keeping it the six to seven years that the average new car buyer does, than the resale value at that time is the relevant figure, not the one after the first year.

    When you buy a car, you are buying a transportation asset. The return on your investment is not money, it is transportation. You could skip buying the car and use Uber to get where you’re going, and maybe that makes financial sense, but for most of us it does not.

    On that new versus used thing, I look at the cost per year for depreciation, maintenance, and repairs. You can lease a new car every three years, and nearly all of what you will spend will be for depreciation. On the other extreme, you can buy an old beater and nearly all your expense will be for maintenance and repairs, plus you get the added fun of riding around in an unreliable box of rocks and get to hang at your mechanic’s place a lot.

    Personally, I like to buy new and keep cars a minimum of 8 years. Right now, there’s some pretty decent late model used stuff to be had for $15K. Not fancy or cool, but very recent and in excellent condition. On the other hand, what’s out there for less that $5000 is dreadful. I hate shopping for used cars, which I recently reconfirmed when I bought a car for my teenaged daughter, which was late model used. After all, it’s bad juju to buy a new car for a teenager.

    • 0 avatar
      VelocityRed3

      3 years ago I bought a 2003 Accord (5sd-manual) with just over 150,000 miles. I’ll be going over 210,000 this month. I got her for 5200, cash & intend to keep it until the wheels fall of. Laid out about 3 grand (new timing chain & since they were there, I got new water pump) & (somewhat unsurprisingly) throw out bearing 3 times (long story) so you are correct in maintenance. I’m a stickler for fluid changes & I had everything (including the 90-weight tranny oil changed in the first 3 days of ownership & on a regular schedule since. I also purchased a ’16 Escape Titanium that has only had a 42 dollar oil change. So I guess the sum of both our stories is, you pays for what you gets. :)

  • avatar
    28-Cars-Later

    This is a concise well written piece but let’s not forget to add these to “recon” costs:

    Auction transaction fee (buyer’s or seller’s)
    Pre-sale or post sale inspection fee (if applicable)
    Pack (if applicable)
    Wholesaling fee (if applicable, these are dealer to dealer sales which don’t hit the action, which are sometimes negotiated by a third party for a fee)

    https://axleaddict.com/auto-sales/Car-sales-Jargon-Dictionary

    (I found the link interesting but only have heard about 1/3rd of the jargon in use myself)

    Successful used car sales is indeed a dark art…

    • 0 avatar
      Scoutdude

      The transaction fee and transportation costs are not “recon” costs they are acquisition costs.

      A “Pack” is also not a “recon” cost it is the dealership not being transparent with the salesman when it comes time to pay commission. So that is not a “cost” but a minimum profit for the dealer.

      Inspecting the vehicle is part of the “recon” process as that is when they figure out what they need to do to the vehicle to make it “front line ready”.

      • 0 avatar
        28-Cars-Later

        Ok, I agree with you on the pack as this is assessed at the time of sale but I think you’re splitting hairs on reconditioning costs. You incur reconditioning expenses in order to achieve a front line ready status. The only time you would not is if the vehicle already is in such a status, but you would still incur the wholesaler or auction fee in acquisition. Since these fees are somewhat static I suppose you could separate them on a spreadsheet as “acquisition fees” vs “recon” costs but they all add to the cost of the vehicle and decrease my profit. Years back I didn’t do the “books” but anything spent from the time we left to go to the time the car was front line ready was simply treated by us as a recon type cost. We bought for X and spent Y on fees and Z in detailing/tires/occasional parts which gave us what we had in it.

        • 0 avatar
          Scoutdude

          I agree the all the costs, no matter if it is for a new set of tires, auction fees, or getting the vehicle from the auction all affects the bottom line of the cost of a “front line” ready car.

          I’m just saying that if standard accounting principles are used then things like the auction fee and transportation would be recorded as an acquisition cost not a recon cost.

          A “numbers” guy will want to see those costs broken down in those categories so they can formulate a plan to reduce them.

          You can break those costs down to things you can control and things you can influence and things you have no control over.

          Auction fees are set by the auction house so they only way you can control them is to find an auction house that charges less or just don’t buy.

          The price you pay at an auction is only controllable by dropping out. It is the “other guy” that sets the price by when they drop out or out bid you. Sure you can say $x is all the money in the world for this car but if you are at that bid what decides whether you take that car home is the other guy, who either says yes that is top dollar or raises his hand and says I’ll pay more.

          For recon costs you can look for cheaper tires, brake pads or shop for a different 3rd party to fix that ding in the door. Or you can tell your used car buyer to stop buying rolling garbage dumps because the cost of cleaning the crap he is bring home is too high.

  • avatar
    SCE to AUX

    Of course, lack of transparency goes to vehicle condition also, not just the dealer’s costs.

    My former Leaf was resold with a ‘clean’ Carfax after having sustained $4000 worth of damage in a front end collision 10 months earlier. The Nissan-certified repair shop apparently didn’t report their work. My e-mail to the used car dealer about this fact went unanswered, so some unsuspecting NC resident bought a car that was more used than they realize.

    • 0 avatar
      dal20402

      I wonder how often this happens.

      My Lexus has a clean Carfax. But the Lexus service history indicates that it had a repainted rear left door due to damage spotted by the original buyer on delivery (which is fortunately not visible at all, although the old-style Lexus VIN sticker is missing from that door), and the front bumper is ever so slightly misaligned (which is visible if you have CoreyDL’s expert eye).

    • 0 avatar
      redliner

      Carfax is wonky. I have seen accidents pop up years later when the car is on its third or fourth owner.

      Take auto reports with a grain of salt. An accident free Carfax means nothing.

      • 0 avatar
        dukeisduke

        True. When I ran a Carfax on my old ’95 F-150 after I traded it in to buy my ’13 Tacoma (I got two free searches as a part of the Carfax class action settlement), none of the accidents it had over 17 years showed up. But the $900 I spent a few years earlier to have the a/c compressor, dryer, and orifice tube replaced was.

    • 0 avatar
      shaker

      Just the fact that Carfax data is available for free on so many dealer and BHPH websites leads me to believe that it’s a good idea gone bad.

      Corruption, again.

    • 0 avatar
      namesakeone

      I know what you mean about Carfax. I bought a five-year-old, factory certified Mazda 6 with the cleanest Carfax report I’d seen. I took the car for warranty work to replace an ignition coil that had gone bad, and under the engine shroud, written on one of the cam covers, was “LKQ”. Needless to say, there was no mention of the replacement engine in the Carfax, or in the sales description of the car.

  • avatar
    kwong

    I’ve had nothing but good luck in both buying new and used cars. I like to think I can find the diamond in the rough and give myself enough negotiating power by buying a less popular car. In 1997, I was able to negotiate a loaded brand new Nissan Maxima SE 5-speed for $26K out the door. In 2004, I bought a used 01 VW Golf TDI GLS with 80K miles for $9.5K. In 2011, I bought a used 07 Lexus Rx400h with 80K miles for $20K out the door (with new tires, brand new windshield, and 12V battery). The latter two had to be purchased 300 miles away and out of state because local demand created a price premium. Both are currently at 292K and 152K miles respectively. I have an arrangement to buy my brother-in-law’s 05 S2000 for $8K…about the price he paid, when he decides to move on to another roadster.

    I was also about to get my 65 year old mom a nicely equipped 2014 Mazda6 MT for $25K out the door…we had a friends and family discount through Mazda. The next new car purchase will likely be a PHEV with a fat manufacturer rebate and tax credit. Again, I find that buying a reliable DIY car that is both less popular and modifiable is the way to save money. I’ll always remember a high school friend getting suckered into overpaying for the popular 98 Honda Accord V6 coupe…he paid $31K, a premium because the dealer said they were in high demand.

  • avatar
    Der_Kommissar

    Bought a CPO E90 328i a while ago. I enjoyed the piece of mind, and the car definitely had its problems, but its hard to tell how much of that is BMW and how much was the treatment of the prior owner. It did develop an oil leak from its rear differential within days of purchase, however. NEver understood how they missed that in “recon”.

  • avatar
    Sid SB

    MT podcast was looking at Beepi and Shift this week, both sound interesting. Vroom out of Texas also seem to be doing well and been around for some time. Are these new ways of buying and selling cars more transparent? Not sure, but definitely the interwebby has helped customers make more informed decisions when buying houses, cars etc, just by providing more information. These car new buying and selling processes can help provide alternative quotes for used car values and also help avoid the time consumer craigslist tire kickers.

    • 0 avatar
      onyxtape

      Beepi was appealing because of their unconditional 10-day return policy. We almost bought from them. But their prices trend a bit higher than our local selection. Judging from the photos alone, they seem to sell only creme puffs that are most likely lease returns. This is reflected in the negative ratings against Beepi from sellers – it seems like getting Beepi to agree to sell your car is harder than getting into Ivy League (or maybe these are paid reviewers who want you to think that…)

  • avatar
    Alfisti

    I don’t understand the entire premise of the article.

    Who gives a toss what the invoice cost was, new or used? What does it matter? All that matters is what is the final drive out price compared to the next dealer up the road, how we get there is irrelevant.

    Do you shop for say, large home appliances, with knowledge of the wholesale cost?

    Who cares?

    • 0 avatar
      PrincipalDan

      Do you haggle over the price of home appliances? Do you go to Home Desperate and see rows of CPO dishwashers?

      • 0 avatar
        Alfisti

        Sure i haggle, I just bought as freezer listed at $600 for $500, if I never haggled i’d be out $100. I don’t go back and forth like crazy but 5 minutes to fire out a few emails and i am done. It’s all copy and paste anyway.

    • 0 avatar
      dal20402

      I agree with this. When I’m shopping for used cars, I’m comparing the car with other similar cars available in the market. I don’t give a flying fig if the dealer stole the car or overpaid for it. I care that I’m getting a deal that’s ideally better than market and at least no worse.

      I went in circles with one dealer about this exact point. He had a car with some rare and desirable options but was stubbornly sticking to an unrealistic price. He tried to sway me over the phone by arguing that he had paid well over normal wholesale value for the car. I thanked him and hung up.

    • 0 avatar
      slance66

      I agree with you. The problem really is knowing when you are comparing apples to apples, and when it is apples to oranges. I have three local Lexus dealers.

      One will always have the highest listed price. Its cars will be immaculate inside and out and will have fresh OEM rubber. They also tend to give higher trade values.

      Another will always have the lowest price. The cars, even CPO, will often be dirty and will have crappy Nexen tires or similar. I have serious doubts about whether they are even doing the things they show on the CPO repair list.

      Another has mid-range prices and the cars look good. I think they are being properly CPOed. They will often have existing tires with some wear on them rather than fresh rubber. I’m guessing the same with brake pads.

      If you just shop for used cars by price…then you’re missing a lot. But the lack of transparency means it’s hard to truly compare.

      • 0 avatar
        Toad

        Slance66’s observation about his local Lexus dealers shows the difference between shopping for the best Value vs. shopping for the best Deal. If your goal is to rip the dealers head off at the negotiating table, the deal is everything. But if you want the best car for your money it really does not matter if the dealer makes a little money or a lot as long as you get the best car you can for the money you are spending.

        Some buyers think the negotiation is more important than the value of the item being purchased; they often forget that the cheapest man often ends up spending the most.

      • 0 avatar
        Paragon

        An excellent post, slance66, on understanding the different pricing on similar or identical models. As you kindly illustrated, someone who takes a little time to do a thorough inspection will discover the real differences (that might otherwise go undetected until after the sale).

  • avatar
    sportyaccordy

    There’s more to getting a good deal on a car than closing the gap between the transaction price and what the dealer paid for it though. I’d rather get hosed for $1K on a used car that will depreciate like 3-4K than get a “great deal” on a brand new car that will depreciate 2-3x that much over the same time period and with essentially the same utility/performance/build quality. A lot of cars still take aftermarket radios so infotainment is a wash.

    In my experience it’s easy to not get culo blasted buying used….

    – Buy from a reputable dealer… they aren’t going to want a negative Yelp review or whatever so they probably won’t sell crap or screw you over.
    – Look up what problems the cars you want have… this is an advantage for used over new as nowadays it seems like manufacturers are all too eager to use customers as guinea pigs. Anyways look the problems up and see what the fixes are; if there were recalls; if there are still recalls; if it’s still too much for you to deal with; if there are proactive measures you can take and budget for etc.
    – Obviously look into the car’s history. Carfax isn’t perfect but it’s better than nothing. I’d feel more comfortable buying a 1 owner car that got taken to the dealership regularly than a multiple owner mystery box.
    – Fix your damn credit… used loan rates are higher than new but still dirt cheap for a half decent score
    – Don’t buy a car without legitimately testing and loading the A/C first… I bought a car on New Years Day and learned the hard way
    – Look into and play ball with the warranty… I have spent more fixing my A/C than I would have on the warranty

    Etc.

    Even if you change cars often you will still come ahead buying used as either your financing costs will be lower or you will get way more car for the $$$. It’s really no contest

    • 0 avatar
      jkross22

      “they aren’t going to want a negative Yelp review or whatever so they probably won’t sell crap or screw you over.”

      We bought from a dealer that had a middling score on Yelp and Google mostly dealing with poor service. We figured since we wouldn’t be having the car serviced at the dealer due to distance, we’d be fine.

      Turns out they did an incomplete job certifying the car we bought as evidenced by the multiple trips to the dealer for numerous items that should have been caught.

      I left Yelp and Google feedback sharing my experience. I checked back a month or so later and the 3.5 stars the dealer had somehow became 4.7 stars with a lot of vague positive reviews and 5 star ratings.

      Caveat emptor when weighing the importance of Yelp and Google. It’s easy enough for any business to buy good reviews.

  • avatar
    CaptainObvious

    There’s a local Mazda dealer that has CPO cars on its lot. In fact, they all have the “Mazda Certified Pre-Owned” sticker across the windshield. I know this because I attempted to buy one once. The price on the windshield seemed good – as the car came with the CPO warranty. Then I was told that to get the car “certified” I would have to pay for all the repairs needed to meet the CPO requirements. So, in essence they were falsely advertising their cars as certified. They “could” be certified if the buyer (me) wanted. So they weren’t going to spend a dime on a car until they had someone on the hook who really wanted the CPO certification. Struck me as a completely shady and underhanded way to get people in to the dealership.

    • 0 avatar

      The OEM will fine the hell out of people for doing that.

      • 0 avatar
        CaptainObvious

        I emailed Mazda directly and asked them about this. The response was boilerplate BS about how dealers are independently owned and operated – but we will take this under consideration.

        This particular dealer bills itself as the largest Mazda dealer in the country. They must sell a ton of cars for Mazda. I bet Mazda doesn’t want to upset them or call them out for anything.

        • 0 avatar

          OEMs are pretty rigid when it comes to OEM rules. I guarantee you the regional rep had a meeting with the GM about that. They’re violating several laws by advertising CPO inventory that hasn’t been certified.

    • 0 avatar
      jacob_coulter

      I had a similar experience with a Saab 9-2x I bought used, but they never advertised it as “certified”

      The dealer wanted to add like $3,000 to make it “certified” and I got the extended warranty with it. I declined, and I’m glad I did as I didn’t end up keeping the car long and I thought it was extremely unlikely to have $3,000 in repairs over the next 2 years or whatever it was.

  • avatar
    Fred

    I suppose there is a simplicity with buying used from a dealer, but you have to pay for it. More for CPO and all you get is krappy 1 year warranty that has exceptions. If you are that scared to buy a used car, buy new or a Camry. Otherwise shopping with private sellers takes some effort, but you can be rewarded with some good deals. I did well on my Audi A3 if you are willing to accept incidental evidence. Maybe I’m okay with it because I’ve bought a few classic cars in my life time.

    • 0 avatar
      pragmatic

      I’ve only gone new once and all of the used have been purchased from private parties. I recommend reading the chapter in the classic John Muir “How to Keep you Volkswagen Alive” on purchasing a used VW. It is the best write-up on buying used cars I have found.

  • avatar
    redliner

    I managed a great deal on my Chevy by buying it from a Cadillac dealer. It had sat on the lot for 5 monthS beccause it reeked of of cigar smoke, but was otherwise in mint condition. I offerd the dealer $2000 below their asking price, which was already well below book. The sales manager accepted without even blinking. I probably could have gotten an even lower price, but I was already very satisfied with the deal.

    Took the car home and spent 8 hours steam cleaning and shampooing EVERY single interior surface. Car now smells like new. Those 8 hours of work where worth $700 an hour.

  • avatar
    88BroncoII

    Interesting article, and this has been on my mind recently due to a transaction I had two weeks ago. In May 2014 I purchased a Toyota Tacoma (double cab prerunner 4cyl) new for $21,000 (invoice was $21,500). Fast forward a little more than two years to late June 2016, out of curiosity I had the Tacoma appraised at a large chain used car dealership. They offered $21k on trade in (what I paid for it). That obviously peaked my interest. Since we have three kids that keep getting bigger (funny how they do that) we thought it might be worth looking at a Tundra Crewmax for the much larger backseat. It’s nice having an alternate family car to my wife’s Sienna.

    So, after some research, I found the Tundra we would want at the same dealership I purchased the Tacoma from. Being a 2.5 hour drive from my house, I sent them some pictures of the Tacoma and a copy of the local appraisal. They offered $22k for the Tacoma on trade in. I’m thinking that could only be against the full MSRP on the Tundra- so we get to work on the Tundra deal. List was $43,655 and invoice was $38,900. I got them down to $37,500 on the Tundra by the time I drove down to pick it up. So, in the end: this dealership sold me the Tacoma new for $21k and gave me $22k for it on trade. Additionally, I bought the Tundra new for more than $1k under invoice. I know dealer holdback is involved in this, and they mentioned that since I bought the Tundra on the last day of the month they were able to go very low on it. Evidently the bonus they would get for meeting a quota was worth more than any loss (if there was one- not sure) from selling the Tundra under invoice to me. They also mentioned they were selling ten cars to Enterprise that day to meet the quota. Guess I got extremely lucky on the timing.

    In the end, I still can’t believe the Tacoma held its value like it did. After more than two years of driving it daily and putting 31k miles on it, they gave me $1k more than I paid for it.

    • 0 avatar
      dukeisduke

      Tacoma resale value is crazy. When I bought my ’13 PreRunner SR5 V6 DoubleCab LongBed, I looked at used ones first – ’08 to ’11 models with 25k to 50k on them, for $22 to $26k. Instead I bought a new ’13 (this was when ’13s were just hitting the dealers, and the one I bought was built the day I made my deal). My price was $28k out the door, including getting $1800 for my ’95 F-150 SuperCab XLT that had 214k on it (one owner, miles all mine). I paid cash, so no financing costs.

  • avatar

    A dealer’s cost in a used car has nothing to do with its market value. Anyone in the used vehicle business knows the money is made when the piece of inventory is acquired, not by the retail selling price. While that can be a variable, the market ultimately dictates that.

  • avatar
    skor

    Um, ‘invoice’ is not really what new car dealers pay for a car. I stopped reading right there.

    • 0 avatar

      Um, I’m giving readers credit for knowing what holdback is, considering we’ve discussed it multiple times here.

      • 0 avatar
        skor

        Um, no. Most people don’t know how holdbacks and dealers incentives work. That’s why “I got the car at cost” game works so well.

        • 0 avatar
          VoGo

          I remember buying a new Accord. The sales rep realized I knew a little bit about the business, so he quickly caved on pricing and pulled out the invoice pricing and said, “How about we do a deal at our cost?”

          “Sure, but you forgot to subtract holdbacks on your spreadsheet.” Oh, how his face fell in the next second.

        • 0 avatar

          Again, we’ve covered that. Would you like me to rewrite every article I’ve ever written every time that we discuss car buying?

  • avatar

    For a consumer the used car “transparency” is the “market price”.

    Since market price is for an average vehicle, the reconditioning will be average at best with after market parts.

    CPO vehicles have an extensive check list, when you think about every used vehicles should be inspected like a CPO, but then the market price would not support such inspections and reconditioning.

    From an accounting perspective all dealers establish what is know as ACV (actual cash value) which is the price paid for a vehicle, or the amount its “costed” at if its a trade.

    Whatever is charged to the stock number be it reconditioning, reserve, lot pack, advertising, increases the cost of the vehicle to what is usually referred to as COS cost of sale.

    The difference between the selling price and COS is the profit, usually about 8% of COS.

    Some dealers apply a “flat recon amount” on all vehicles, usually slightly higher than the average recon amount on a retail unit.

    Manufacturers push CPO units, and the extended warranties on the CPO, since a well inspected used vehicle, with some remaining warranty and an extended warranty from the manufacturer generates an additional profit to the manufacturer who supports the warranty. While the customer has additional peace of mind.

    Dealers have various accounts, and adjust costs with journal entries in accounting. The end of the month deal that captured the manufacturer bonus with the over paid trade in, and below cost new vehicle are quickly adjusted internally with journal entries.

    • 0 avatar
      Scoutdude

      “Dealers have various accounts, and adjust costs with journal entries in accounting. The end of the month deal that captured the manufacturer bonus with the over paid trade in, and below cost new vehicle are quickly adjusted internally with journal entries.”

      Finally someone who actually understands business.

      The used car manager doesn’t get screwed because they over paid for a trade to close the deal and secure the bonus for meeting quotas.

      Yeah we will sell you this car at a net $1000 loss because we will get $x each for the other 99 cars we sold this period.

  • avatar

    “if you see a late-model used car on a franchise lot that isn’t certified, run very fast in the other direction”

    Unless it’s a very cheap model. As you mentioned there is a high cost to get CPO on a car. We never CPO Fiesta’s unless they are an ST, because the cost of making them CPO makes them the cost of a new car.

    Late model used cars generally are not worth while in value. When folks cry about new car depreciation, I honestly think they are factoring from MSRP. Even if you pay sticker minus rebates, you’re ahead by a decent chunk in at least most domestic vehicles. Used cars are good deals as the utility value stays high and the market value gets low. I like low mile 8-10 year old vehicles as examples. They might all be Buicks, Mercs, and other old people cars, but that’s what I want for value.

    What a dealer owns a car for is really not a great tool to determine if you’re getting a good deal though. CPO candidates purchased at auction are notorious losers for us on the front end. Thankfully most folks do let us make a little on warranties and what not. There are lots of good internet value tools to determine values, personally I’d rather over pay for a really clean example than get a great deal on a car that’s been sitting around on the lot for 80 days, there is probably a reason it’s sitting.

    Of a curious note, Car Gurus brings about the worst leads to the internet department. Reminds me of the Muppets sketch with “got anything cheaper” travel. Watch it, and yes, that’s how you look. Nothing wrong with being smart! Just don’t be so cheap that you miss all the actual good deals.

  • avatar
    gasser

    Fascinating to learn all the different terms and accounting techniques involved in used cars. For me the one concept I always have is that new cars are a commodity, while used cars are individuals. Buying new, I look for the lowest price. When going used, I look only for the best example and then try my best to negotiate.
    I particularly like the story above about the Tundra/Tacoma prices. Since depreciation is still the major cost of a vehicle, if you can pare that down you are doing well. Worst mistake I made on depreciation was with a LEXUS RX350. I had bought it out from a three year lease I had for about $22,000. After 2 years (RX now 5 model years old) I was going to buy a new one, so I took it to CarMax. They made a written offer for $22,000 which meant I would have paid 0 to drive it for 2 years. But, being “clever” I passed and drove it another 2 years (adding about 12 K miles to the car. Now the best I was offered, by CarMax and others was $14 K. Just great… It cost me $8K for 12K. miles.
    There is a sweet spot to depreciation and if you are lucky enough to find it (P.S. Free mileage is it) JUMP AT THE
    DEAL.

  • avatar
    05lgt

    A good deal doesn’t mean the other party doesn’t make money, and the other party losing money doesn’t mean you got a good deal. I’m totally with the UR turn writer who bought the Z4, the sellers cost is totally irrelevant to me. It has a value. It has a condition. If I can tell you are lying to me or don’t know things you should know (turning a blind eye) I’m not dealing with you. If you want/need more than it’s worth, I’m not your customer.
    Paying a premium for a new car is your choice, but you only get to BUY a new car. We all drive used cars as soon as we register it.

  • avatar
    Mathias

    What 05lgt said, and what alfisti said above:

    “Who gives a toss what the invoice cost was, new or used?”

    A good deal has to be judged against the market price of the car, and is completely independent of how much money the dealer earns (or loses) on the deal.

    But I’d go further and say I don’t even care how the car stacks up against similar ones; it’s a matter of whether the deal makes sense for my situation.

    There are plenty of good deals to be had on cars I can’t really use — not enough room, no roof rack, can’t mount a trailer hitch, etc.

    And there are cars that are so expensive used that one should buy them new, if at all.

    And finally, there are cars one should not buy because they’re junk. Good luck with a Ford Taurus from the mid-aughties with the CVT, for instance.
    Thankfully, that sort of thing has been pretty rare for a while.

    Finally, good luck getting a good deal on any car when the dealer has overpaid for it. They like feeling like idiots just as much as the rest of us.

    • 0 avatar
      VoGo

      I agree. A new car buyer needs a different metric for “getting a good deal” depending on the situation. I bought a 2002 Acura MDX new for MSRP. Sounds terrible, right? Expect that 90% of MDXs at the time went for over list price, or had an additional $5K in worthless accessories added to the price.

      On the other hand, you can buy a new LaCrosse at invoice, and you’ll be saddened by the resale value if you try to trade it in after a year, because the new model is about to come out, and no one will want a $35K used Buick.

  • avatar
    HotPotato

    I admit I am utterly befuddled by used car pricing. I have been sorta considering a used Volt. I’ve seen apparently identical units for like $23k and $16.5k, or two units side by side where one has much higher miles but the pricing is identical. I’d lay it on the cost of CPO but by all indications the gen-1 Volt is an extremely reliable car.

    So suppose a similar MY 2013 vehicle is priced at $16.5k with remaining factory warranty at Joe’s No-Name Car Lot and $23k certified from a Reputable Chevy Dealer…is the bigger risk buying a potential problem or being a soaked sucker? What’s the right buy?

    • 0 avatar

      The vehicle history report is critical—not that they’re always accurate (lots of information missing) but if there is something on the report, it’s worth investigating. I wouldn’t necessarily say that an independent dealer is less likely to be reputable than a franchise store. DealerRater is a good, relatively difficult to game review system. I’d check their rating there.

  • avatar

    I’ve been shopping for used cars and I’m getting so sick of hearing about “market pricing”. Sorry, but comparing the asking price doesn’t tell you the market price… Comparing actual transaction prices would, but dealers won’t have any of that (see truecar).

    When realtors run comps they don’t look at asking prices, they look at what homes SOLD for…

  • avatar
    Erikstrawn

    Twenty years ago I was a dealer technician, and the reconditioning usually consisted of an oil change and looking the vehicle over for obvious defects. Cosmetic defects were always fixed. Mechanical defects were only fixed if they were obvious. Some cars got just an oil change and a hot spot as the “draw-in car” (i.e. $4999 pricing to get people on the used car lot). I’d estimate the average cost was about $100. The detailing was another $100. I think all-in it was easily under $500 on a used car lot with cars that averaged around $15-20K

    “Certified Pre-Owned” was a new thing at the time, and it was basically a standardized checklist of things for a technician to look over, along with the dealer’s “guarantee” those things were looked over. I trust it about as far as I trust the schmoozing salesman who presents it (not very much).

    I would do not care what the dealer’s costs are. Shop by price and condition compared to other cars on the market (i.e. shop around), and always have the condition verified by an independent mechanic.

  • avatar
    427Cobra

    when I leased my 2013 Ford Edge Limited, I traded in my immaculate 2005 Mustang GT convertible (premium) which had 28,000 miles on it. I had tried selling it myself, but at a $15k-$17k price point, it was a tough sell in the private sale market. Most people buying such a car will want to finance, & thus easier to go through a dealership. CarMax offered me $13k for it. The dealership offered the same… so I ended up taking it. A week later I drove by the dealership, & right out front was my Mustang with a $22k price tag on it. I thought to myself… “good luck with THAT!” Sure, I had hoped to get more for it… but I had only paid $16k for it 4 years earlier. So the mustang cost me $750 a year while I owned it. I can live with that. As long as you buy smart, you can make out ok…

  • avatar
    mchan1

    Learned years that CarFax means nothing but anything reported to the insurance.

    Bot my old 2005 as pre-owned with remaining warranty from an auto dealership but it had 20k miles for a 8 month old auto (former Enterprise rental as the info was left in the glove compartment!) but had to ‘pay’ for extended warranty to make it a ‘CPO’. A year later or so, brought it to a shop and the technician said that the car had some rear end damage that was basically fixed but was sloppy, which I figured out before then. Thank good for buying the extended warranty and the next one after as it lasted >10 yrs!

    Nothing wrong with buying new except for paying a higher price. Expect to keep it for at least 10 years so it’ll pay for itself in the future.

    I’m wary of buying used as you never know the history of the used vehicles. Generally, if 36k miles (i.e. former salesperson’s car), the dealership would include only a 1 year extended warranty or so and you’ll have to buy a longer warranty coverage.

    Now if I can find a decently used truck (F-150 or Silverado) for a reasonable price, which is difficult considering the hot market for trucks and that many have both high mileage and questionable conditions depending on the former owner’s usage of the truck. I want it to last at least another 5 years.

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