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Great idea - good luck guys! Related note for the HN community, while we're on the subject: Unless you have time & money to burn, you really should never neve
by nlh 13y ago
Great idea - good luck guys! Related note for the HN community, while we're on the subject:
Unless you have time & money to burn, you really should never never never trade your car into the dealership. It's the worst price you're going to get along the used car supply chain. And even if you think you're getting a good price, it's because you're probably pairing it with buying a car (and paying too much for the car you're buying).
The worst-case used car dealer supply chain works like this (going backwards):
* You buy a used car for $20,000.
* The used car dealer bought it from a wholesaler for $19,000
* The wholesaler bought it from a wholesale auction for $18,000
* The dealership who sold it at auction paid $16,000 as a trade-in.
(*I saw worst case because not all of these steps happen each time)
Note the chain begins with trade-in -- because dealerships know that people who are trading in are pressed for time and want a no-hassle deal. But in doing that, they're giving up $thousands to each step along the chain.
So when selling a car - going direct (or using a service like InstaMotor) is always going to net you more $$ than trade-in.
And now ya know :)
- BrownBuffalo 13y agoWhat about BUYING a car in the same fashion? I mean, the shake-up here in the used market sees the same paradigm. Be the broker ... vs. the service fee out. :)
- sharkweek 13y agoI just listened to the This American Life episode "129 cars" about a month in a car dealership - SUPER fascinating look at the industry, with a lot of insider information: http://www.thisamericanlife.org/radio-archives/episode/513/129-cars http://www.thisamericanlife.org/radio-archives/episode/513/1...
- _sy_ 13y agoActuall, that was one of the best episode of This American Life.
- nlh 13y agoTotally. That episode is one of my favorite TALs ever (second to 'Summer Camp', which despite having been done in the 90s is still totally relevant). In fact, I used a lot of the knowledge from '129 cars' to help with a recent purchase of a Jeep (not from that dealership, sadly). I'm going to write up a blog post about the experience - I learned a lot and it should be helpful to others.
- toomuchtodo 13y agoWould love to read the blog post. Any chance I could get an email when its up?
- chandraonline 13y agoMy favorite episode as well. After this episode when I recently bought a new car I did the research (used the step-by-step of this fighting chance package I found googling) and bought a car on the last day of the month about 1500 below dealer's invoice price after accounting for all hold backs. Felt really good to get some of that money back I have lost to dealerships over the years.
- mentos 13y agoJust finished it, thanks for sharing, really great insight into the industry.
- jesalg 13y agoThanks for posting the link. After listening to this partially on the radio, I searched for it online but couldn't find it since I didn't know what the show was called.
- gregcohn 13y agoAnd of course if the dealer themselves took the trade-in, as is often enough the case at a prime-brand dealership where they do a lot of leasing, they get all the markup in that value chain.
- joshcanhelp 13y agoIf you sell to a dealership that will sell the car themselves, you have some wiggle room on the trade-in price because you're cutting out 2 middlemen (wholesaler and auction). Also, don't forget the tax benefit you get by the lower price of the care you're buying. Not sure if this is new cars only but that offset can be thousands, depending on the trade-in value and new car cost.
- deleted 13y ago[deleted]
- larrys 13y agoTax benefit (in most states afaik) has nothing to do with whether the purchase is a new or used car. To explain (for anyone not familiar since the way you phrased it might be confusing): New car price: $30,000 Your trade in: $10,000 Net price: $20,000 So Sales tax 6%20,000 vs. 6% 30,000 (example of a state with 6% st) If you sell the car yourself you can still use it as a trade in if you can coordinate with the dealer and your buyer and do what is known as a courtesy trade. But you have to get the buyer to show up and take your used car when the dealer delivers your new car. The dealer does the paperwork and usually charges a few hundred dollars or less for handling the sale. It is well worth the trouble if you can get the cooperation from the buyer.
- joshcanhelp 13y agoThanks for the clarification ... and the information on the courtesy trade, I've never heard of that before.
- ValG 13y agoJosh, The average dealership doesn't know if they're going to keep a car for their own inventory or going to sell it at auction/wholesale until they own it. Standard procedure is to purchase a car (purchase = take it on trade-in/buy it) and then have the mechanics inspect it to see what it needs done on it to get it back out to sell. If it's too expensive, they wholesale/auction it. This means, 90% of the time, they default to offering you the lowest value.
- cc439 13y agoThe gap between what people are getting for trade-in value and what people end up paying for the exact same car always blows my mind. Some of it can be explained by the need to finance the 2nd most expensive purchase made by the average person (the 1st being a home). However, anyone with a half-decent credit score can get a loan from a bank or credit union. Those loans almost always have a better rate than a dealer will offer on a used car so you not only save thousands on the principal but you'll end up paying hundreds less over the term of the loan. I just cannot fathom how people can walk on a dealer lot and buy a used car without taking one minute to look up the market value on KBB. There's just no way you wouldn't feel ripped off.
- ValG 13y agodisclaimer, this is just my experience, I don't know that this happens at all dealerships, but I suspect it does CC, it's actually a little more insidious than that; dealerships have always survived on the asymmetry of information between dealer and buyer. Not to sensationalize, this happens in roughly 30% of sales, (usually by the sales person without actually thinking about it)... 1. A person has seen a car online that they want. They may do the legwork and research the car. 2. The walk into the dealership looking to buy the car. The 1 thing people don't think about (generally) is the financing. 3. They find out that they don't have the credit, income, etc... to actually finance that car. 4. The sales person "places" them on a new car, one that they haven't researched. 5. The buyer gets caught up in the moment, falls in love with a car etc... They buy the car for way more than its worth. This is why Dealers hate companies like TrueCar. It destroys the asymmetry. It's also why dealerships are getting squeezed; the average deal takes a few hours, in that time, people can use their phones to check the car they're buying. It's an interesting dynamic.
- larrys 13y agoOne point that your write up doesn't take into account is that a car dealer can get more for a car, the same, car, in general, than a private seller can. A car dealer can put a short or longer term warranty on a car that gives a buyer confidence. If you are buying a used Honda from a Honda dealer who is reputable (and my guess is that is 99% of them are or they wouldn't remain franchised), as opposed to the local used car lot, you generally and on average are going to have better purchase security than buying a car from a stranger that does not come with any warranty or guarantee. A car dealer also has (in theory) experienced salespeople who know how to drag the most money out of a buyer and exploit their weaknesses. You as a private seller don't. So you will (on average not the exception) not be able to get as much for the same car as the dealer will. This is not to say that the idea presented by the OP won't work (because they appear to be adding a level of guarantee to the deal). Just that in the example you are giving there are reasons why "you buy a used car for 20k". Reasons that are separate from what you would get if you tried to sell the same car for 20k.
- ValG 13y agoHey Larry, 1. Warranty - We've actually talked about a lot of these items, including adding a warranty on top of the cars we represent. We'd be able to do this because we do a mechanical inspection on each car. The 1 thing we can't do is add CPO (that's manufacturer only). 2. Experienced Sales People - sales person turnover is roughly 50% per year at the average dealership. Because of this, dealerships don't spent money on sales person training. Experienced sales people are difficult to get. We're working on it and want to add more value than dealerships for less! I'd love to talk more. If you're interested, please email me at val@instamotor.com