Topic: Black book prices surprisingly low

[articsteve]

Can someone please explain to me what a it is that a dealership does to spend an average of $1500 on reconditioning for a used car? 

I have a hard time figuring out how any decent dealer can possibly spend that much at their cost.

Define: "at their cost."

decent dealer can easily spend that.  It's the indecent dealer that you need to be concerned about not spending whats required.

[AVToller]

A lot of people decide to trade in their old car when it is obvious that it needs a lot of work such as brakes, suspension, a tune-up, new battery, an electric motor or two, etc. These may well not be discovered during the 3 minute trade inspection. Add a bit of cosmetic work, and voila. 

[2latecrew]

Stage; it's not as much of a gap as you are lead to believe. Run of the mill cars in your example usually net the dealer $1400-1800.  Direct costs to the dealer are at least $1000 per car.  Indirect costs could be another $500.

What "costs"?

Reconditioning costs? You mean the deductions dealers make from the black book value when they take a trade in?

If its going to cost a dealer $1500 to get it ready for sale he's either making sure he gets they car for $1500 less than its worth or he's sending it to the auction.

Its not uncommon for there to be thousands in markup on a used car in my experience.

Its not uncommon for there to be thousands in markup on a used car in my experience.

Well I suggest you get yourself a car lot and find out first hand. 

Don't need to. Not only did I see cars (Toyota dealer) and SEE the profit in used cars I also work with Total Loss valuation products every single day. I'm not "guessing".

My most recent expereince was the rock solid offer from the Volvo dealer on my trade in. 14K is all we can give your car is PERFECT we wouldn't need to do anything to it but that's just how it is. I turned around and sold it privatley doing nothing to the car for 17 K. The dealer even admited to me that he was disapointed he didn't get my car on trade becuase of the profit he would have made.

They ALWAYS cry about how much they had to "put into the car". We had to spend $1500 to get it ready to sell. I know blackbook is 10 K but we had to spend 1500 on it and we will sell it to you for 12K just a tiny $500 profit. BS. They slammed the guy on the trade in for 1500-2000 in "reconditioning " deductions. They really paid 8500 or the car even if they add $1500 on for "reconditiing" (which likley is really $750 worth of work billed back at their service dept at $15000 to give service a nice 750 internal profit they spent 10K total and will make $2000.

[dorin]

Define: "at their cost."

at their cost = dealer cost for parts and labour, i.e. not the retail price they charge outside customers and the actual time spent doing the work charged at the price they actually pay the mechanics

[Trainman]

Can someone please explain to me what a it is that a dealership does to spend an average of $1500 on reconditioning for a used car? 

I have a hard time figuring out how any decent dealer can possibly spend that much at their cost.

When I bought my Pathfinder, it had $900 spent on it at the Nissan dealer (brakes, diff service, LOF, etc), plus whatever the broker did to it to clean it up.  And that was only with 60,000 km.  I can see higher km vehicles requiring more than what the Pathy got.

[dorin]

Can someone please explain to me what a it is that a dealership does to spend an average of $1500 on reconditioning for a used car? 

I have a hard time figuring out how any decent dealer can possibly spend that much at their cost.

When I bought my Pathfinder, it had $900 spent on it at the Nissan dealer (brakes, diff service, LOF, etc), plus whatever the broker did to it to clean it up.  And that was only with 60,000 km.  I can see higher km vehicles requiring more than what the Pathy got.

Now, was that $900 actually spent by the dealer or $900 as shown on a customer, retail-priced invoice?  I'd also be surprised if the dealer didn't account for that reconditioning cost when acquiring the Pathfinder.  If the dealer actually paid top Black Book value for the Pathfinder, then spent that much, then sure it's all good.  However I highly doubt that a dealer with any business acumen would actually do that.

[Trainman]

Can someone please explain to me what a it is that a dealership does to spend an average of $1500 on reconditioning for a used car? 

I have a hard time figuring out how any decent dealer can possibly spend that much at their cost.

When I bought my Pathfinder, it had $900 spent on it at the Nissan dealer (brakes, diff service, LOF, etc), plus whatever the broker did to it to clean it up.  And that was only with 60,000 km.  I can see higher km vehicles requiring more than what the Pathy got.

Now, was that $900 actually spent by the dealer or $900 as shown on a customer, retail-priced invoice?  I'd also be surprised if the dealer didn't account for that reconditioning cost when acquiring the Pathfinder.  If the dealer actually paid top Black Book value for the Pathfinder, then spent that much, then sure it's all good.  However I highly doubt that a dealer with any business acumen would actually do that.

It was the price on the invoice sent to the dealer, what discount was included is not indicated on the copy I got.  The price for the Pathy had been pre-determined, subject to an inspection and repair of defects to my satisfaction.  The dealer was not happy with the bill from Nissan, it seemed unexpected but it got the deal done.  Considering the price I paid, plus the cost from Nissan, I do not think there was much profit for the dealer on this.  Note it was a lease return and the dealer had to pay the buyout as well as the repair costs.

[dorin]

Fair enough.

I fear I might be coming across wrong here.  I don't doubt that there are reconditioning costs involved in reselling used cars.  I also don't doubt that some of those cars end up costing more to recondition than the dealer anticipated. 

What I do doubt is that dealers really spend $1500 out-of-pocket on reconditioning the average used car they resell.  Furthermore, I also doubt that if those average reconditioning costs bear out then the dealer doesn't take them out of the price they pay for the used car in the first place.

[Cord]

You don't understand how the business of a car dealership operates. Basically, each department acts as a separate business entity within one company - each responsible for its own budgets, expenses, and profits. This is done so that the overall business remains profitable for the owner. It would impact this profitability greatly if each department cannibalized the profit of the others.

Used Car Departments generally pay retail or very close to retail for service work done at the dealership. Staff get much better discounts than does the Used Car Department. The amount of profit available in selling used cars is just not sufficient to support the manpower and infrustructure of a service department which is what would have to happen if the service department did all the used car work at dead cost.

Oh I know, to a consumer it all sounds terribly unfair but that's the way those businesses operate. You may as well tilt at windmills as claim the the service department's profit justifies you getting a discount on a used car.

As to what adds up to $1500 in reconditioning? As AS mentioned above it depends on the quality of the store. Some places like the independant used car lots are a crap shoot but most do a minimal amount of recon. Franchised dealer used car operations generally do much more in order to provide a higher quality product. Trade-in only came with one key? $120+ to cut and program new key plus new fobs. 95% of trades require a complete detail - $200-$400. 80% require a new windshield - $180-$350. Tires below 40%? In the garbage they go. Brakes below 50%? New pads/shoes plus rotors or machining. Every vehicle gets an inspection including an oil change and lube - $100-$150. Stop there and you've got a used car that didn't need much work. Ever seen a car with body damage? Ever heard of a truck that didn't have worn ball joints? Ever heard of a car needing new shocks/struts? Torn upholstery, cracked bumpers? Cars with these problems and many, many more get traded in every day. Is it really that hard to visualize $1500 worth of work?

[dorin]

You don't understand how the business of a car dealership operates. Basically, each department acts as a separate business entity within one company - each responsible for its own budgets, expenses, and profits. This is done so that the overall business remains profitable for the owner. It would impact this profitability greatly if each department cannibalized the profit of the others.

We've been over this before and I do understand perfectly.  My point is that profit for the owner is still profit for the owner regardless of which department it comes from.  As a consumer it matters not a whit whether a dealer profits $X from the used car department and $Y from the service department off the same car - it's still $(X+Y) in profit.  The point here is that the dealer is making the total profit at the end of the day.

Used Car Departments generally pay retail or very close to retail for service work done at the dealership. Staff get much better discounts than does the Used Car Department. The amount of profit available in selling used cars is just not sufficient to support the manpower and infrustructure of a service department which is what would have to happen if the service department did all the used car work at dead cost.

You, I and most other buyers out there will just have to disagree on that one.  The aggregate profit in used cars is most obviously more than enough to support the required infrastructure because the infrastructure is there and dealers are making a killing on used cars.  At the end of the day, it's the consumers' choice whether to pay or not, and a lot obviously pay.  I don't have a problem with that.  The thing I do have a problem with is dealers claiming poverty while raking in the dough.  That part is just an insult to consumers' intelligence.

Oh I know, to a consumer it all sounds terribly unfair but that's the way those businesses operate. You may as well tilt at windmills as claim the the service department's profit justifies you getting a discount on a used car.

Not unfair, just specious.  And yes, the service department's profit definitely justifies getting a discount on a used car.

Trade-in only came with one key? $120+ to cut and program new key plus new fobs.
...
80% require a new windshield - $180-$350.

See, the key thing is exactly the type of inflated charge that I'm not buying.  If I am able to buy a blank chipped key for my car off eBay for ~$20-30, get it cut for $5 and then program my car to recognize it in 3 minutes then there's no way that I will believe that it costs a dealership any more than that to do the same.

I also cannot possibly believe that 80% of all dealer-sold used cars have brand new windshields.  You've totally jumped the shark on that one.

Cars with these problems and many, many more get traded in every day.

Obviously, but cars with those problems and many, many more do not get top trade-in dollar?  Or are you claiming that they do?

[transamdriver]

Guess what - car dealers are in business to make money!  and that means selling used cars at a profit (as much as they can make).  The sales staff in any dealership gets paid on a percentage of the "gross profit" (less recon costs and a dealer "pack") - usually between 25 to 40 %.  If they can steal your trade, they will. Most older trade-ins are packaged together for a used car autobroker.  He usually takes the dogs with a few good ones. Often the sales manager will ph. the broker, "call" the used trade-in on the ph. to the broker, and get a firm price from the broker so he knows what he will get for the trade.  Old cars are considered too much trouble to keep - potential consumer complaints, and then inventory and space problems.  They only have so many dollars available for used car inventory.  If the brokers don't buy the older (and sometimes newer) trades they will get shipped to the auction.

Many a used car sales manager has "paid too much" for the trades and will find himself looking for new employment after several months.  Remember, that used cars keep depreciating and the dealer has to rotate the stock.

New cars are shovelled out the door for whatever they can get over invoice.   Quite often a new car salesperson will just make a "flat" if the model is a dog and has to be discounted to move it. For every big "home run" they make there are lots of skinny deals also.  The manufacturers put lots of pressure on the dealers.

It's a tough racket - try it sometime. 

Robert Barg

[dorin]

It's a tough racket - try it sometime. 

No thanks. 

I'm still trying to figure out how the rest of your post fits in with the conversation we were having? 

[mmret]

You don't understand how the business of a car dealership operates. Basically, each department acts as a separate business entity within one company - each responsible for its own budgets, expenses, and profits. This is done so that the overall business remains profitable for the owner. It would impact this profitability greatly if each department cannibalized the profit of the others.

We've been over this before and I do understand perfectly.  My point is that profit for the owner is still profit for the owner regardless of which department it comes from.  As a consumer it matters not a whit whether a dealer profits $X from the used car department and $Y from the service department off the same car - it's still $(X+Y) in profit.  The point here is that the dealer is making the total profit at the end of the day.

I'm curious about this too. Maybe its something about creating internal pressure and competition, so that each department tries to push for as much profitability as possible for its own sake? Something like "Service is going to charge us $1500 for reconditioning on this!" vs. thinking "Oh well, we can get this done internally for like $300.". Like commission, its making each part of your business work as hard as possible within the framework.

[dorin]

I'm curious about this too. Maybe its something about creating internal pressure and competition, so that each department tries to push for as much profitability as possible for its own sake? Something like "Service is going to charge us $1500 for reconditioning on this!" vs. thinking "Oh well, we can get this done internally for like $300.". Like commission, its making each part of your business work as hard as possible within the framework.

For sure.  But regardless of what business organization philosophy you couch it in, at the end of the day the dealer/owner still makes a total profit off of a used car.  As a consumer it's that total amount that I care about, not the breakdown between departments. 

That also means that rolling the service department profits into the reconditioning cost is nothing but sophistry from a consumer perspective.  It doesn't matter if it's justifiable from an internal organization standpoint or not, it's still profit for the dealer and claiming otherwise is dishonest.

[mdxtasy]

As a business owner running a dealership, I would care which department was bringing in what % of the total profit. 

[dorin]

As a business owner running a dealership, I would care which department was bringing in what % of the total profit. 

Uh huh...  But as a consumer why should I care?

There are two bones of contention here.  The first is whether used car dealers profit from the reconditioning costs.  I say they do, and up to now no one really said otherwise.  The second is whether it matters to the consumer which department is making how much money for the dealer.  I don't see why it should.  Service/sales profit is all lumped in as one pot of dealer profit from my perspective.

[mdxtasy]

As a consumer, it should not concern you what or where the dealer's profit is coming from.  You're there to take care of yourself.

[MKII]

The question that needs to be answered and never will be is "what dealership prepares a used car to proper standards to be fit for sale?"

In my 30 or more years of looking at used cars on whatever used car lot, I have always came away shocked the pitiful condition most are in, considering they are trying to sell these vehicles for top $.

Show me a car dealership that gives a rats ass about the condition of a car, be it used or new and I will retract my comments.

The last thing people in the car industry care about is a vehicles condition, as long as they can mask or cover up any cosmetc damage (and in many cases they don't even do this) they will sell a consumer whatever they can move off the lot. Ever seen a used car for sale with 4 different brands of tires,  etc.



 

[ktm525]

The question that needs to be answered and never will be is "what dealership prepares a used car to proper standards to be fit for sale?"

In my 30 or more years of looking at used cars on whatever used car lot, I have always came away shocked the pitiful condition most are in, considering they are trying to sell these vehicles for top $.

Show me a car dealership that gives a rats ass about the condition of a car, be it used or new and I will retract my comments.

The last thing people in the car industry care about is a vehicles condition, as long as they can mask or cover up any cosmetc damage (and in many cases they don't even do this) they will sell a consumer whatever they can move off the lot. Ever seen a used car for sale with 4 different brands of tires,  etc.



 

 

A great example was a 2005 Lexus LX470. So dirty that I couldn't tell if it was white or blue. 1 oddball tire and another was completely flat. Dealer wanted $62000k.

[Cord]

We've been over this before and I do understand perfectly.  My point is that profit for the owner is still profit for the owner regardless of which department it comes from.  As a consumer it matters not a whit whether a dealer profits $X from the used car department and $Y from the service department off the same car - it's still $(X+Y) in profit.  The point here is that the dealer is making the total profit at the end of the day.

The reason it matters is that the used car department does not have access to the service department's profit. They do not have the option to transfer money from one department to another. Trying to obtain a discount based on other dealership departments' profit will just get you kicked out. The only one that could make that happen would be the dealership owner. Good luck trying to get him/her/the corporation to negotiate with you on a used car.

As for the rest, I've only presented some information based on almost 20 years in the car business. Accept them, reject them, I don't care.