Used Cars: How Much Do Dealers Profit from Selling It

Have you ever wondered how much profit dealers make when they sell used cars? It’s a common question for car buyers, and it makes sense to ask. Dealers usually mark up used cars to make a profit. But how much do they increase the prices? Several factors influence this markup.

How much do dealers markup used cars?

Understanding how much profit dealers make on used cars involves looking at a few key factors. While there’s no set amount, the typical dealer markup on used cars usually ranges from 10% to 30% of the car’s selling price. This means the markup can be anywhere from $1,500 to $4,000, depending on the car’s value and market demand.

Variations in Dealer Markup

1. Car Condition: A well-maintained car with low mileage will usually have a higher markup compared to one that needs major repairs or has high mileage.
2. Demand: High-demand vehicles, like popular SUVs or trucks, often have higher markups because they’re more desirable.
3. Dealership Policies: Different dealerships have different overhead costs and profit goals, which affect their markup strategies.
4. Location: Market conditions in different regions can affect markups. Urban dealerships with higher operating costs may have higher markups compared to rural dealerships.
5. Seasonal Trends: During peak buying seasons, markups might go up due to higher demand, while off-season sales might see lower markups to attract buyers.

Other factors influencing dealership markup on used cars

Dealers consider several factors when deciding on the markup for used cars. Here’s a breakdown of what goes into this calculation: 

1. Purchase Price: The initial cost the dealer pays to acquire the vehicle is crucial. Dealers typically buy cars from auctions, trade-ins, or directly from sellers. The lower the purchase price, the greater the potential profit.
2. Inspection Costs: Dealers conduct thorough mechanical and safety inspections, costing between $100 to $500 per vehicle.
3. Repair and Refurbishment: Fixing mechanical issues, replacing worn-out parts, and performing minor upgrades can range from $200 to $2,000 or more, depending on the car’s condition.
4. Cleaning and Detailing: Professional cleaning and detailing services, both interior and exterior, can cost between $100 and $500 per car.
5. Warranty: Offering a warranty or certified pre-owned status adds several hundred to a few thousand dollars to the dealer’s expenses.
6. Sales Commission: Dealerships pay commissions to their sales staff, typically ranging from 5% to 10% of the car’s selling price.
7. Overhead Costs: Operating a dealership involves expenses like rent, utilities, insurance, and administrative salaries, covered through the markup on each vehicle sold.
8. Marketing and Advertising: Costs for online listings, print ads, and other promotional activities are factored into the markup.
9. Transportation: Shipping costs, ranging from $200 to $1,000, are included in the markup if the dealership needs to transport the vehicle.
10. Taxes and Licensing: Costs for permits, licenses, and taxes can add several hundred dollars to the final price.
11. Profit Margin: The profit margin, usually a percentage of the selling price, is crucial for the dealership’s financial health. Dealers typically target a 10% to 30% profit margin.

Why it’s important to know dealer markups

Understanding how much dealers markup their used cars is crucial for buyers. This knowledge helps consumers make better decisions and negotiate more effectively to get the best deal possible. 

• Making Informed Decisions: Knowing the typical dealer markup on used cars allows buyers to see if the asking price is fair. This helps distinguish between a reasonably priced vehicle and one that’s overpriced. Understanding what affects dealership markup allows buyers to evaluate if the car offers good value for money.
• Negotiation Power: Information about dealer markups gives buyers leverage in negotiations. When buyers know the average profit margins and costs involved in preparing the car for sale, they can counter high prices with informed arguments. This can lead to significant savings and a fairer deal.
• Identifying Hidden Costs: Dealer markups often include hidden costs, such as fees for inspections, repairs, reconditioning, and warranties. Understanding these allows buyers to ask important questions and request a breakdown of the costs. This transparency helps in negotiating the removal or reduction of unnecessary add-ons and fees.
• Budget Planning: Knowing the typical markup on used cars helps in budget planning. Buyers can set realistic expectations and allocate their finances accordingly. This ensures buyers are not surprised by inflated prices and can make well-considered financial decisions.
• Avoiding Overpayment: Awareness of dealer markups helps buyers avoid overpaying for their vehicles. Comparing the dealer’s asking price with market values and considering the markup allows buyers to identify when a car is overpriced. This insight prevents buyers from making hasty decisions based on high prices.
• Building Trust with Dealers: Informed buyers foster a more transparent and trust-based relationship with dealers. Dealers are less likely to use aggressive sales tactics when they know the buyer understands the markup and pricing strategies. This mutual understanding leads to a smoother and more pleasant buying experience.

How can you use the markup for negotiating?

Here are some simple strategies to help you save money and get a fair deal when negotiating with dealers: 

• Research: Before negotiating, check the car’s value using sites like Kelley Blue Book. Compare prices from different dealerships to see the typical markup in your area.
• Understand the Dealer: Dealers need to make a profit to stay in business. Knowing their markup helps you understand their position while still aiming for a fair price.
• Present Your Findings: Show the dealer your research during negotiations. Highlight any differences between their price and the market value to justify your counteroffer.
• Mention Competitors’ Prices: If you find a similar car at a lower price elsewhere, let the dealer know. They might match or beat the price to make the sale.
• Focus on Total Cost: Consider all fees and extras during negotiations. Ask for a breakdown of costs and negotiate to remove any unnecessary fees.
• Be Ready to Walk Away: If the dealer won’t meet your price, be prepared to leave. This can encourage them to offer a better deal.
• Use Financing: Dealers may reduce the markup if you agree to their financing. But compare options to ensure you get the best deal overall. 
• Time Your Negotiation: Negotiate at the end of the month or during off-peak seasons when dealers are more eager to make sales.

Understand the factors affecting dealer markups

Knowing how much dealers markup their used cars is essential for buyers. Understanding the factors that influence dealership markup helps you make informed decisions and negotiate better deals. Next time you’re shopping for a used car, consider the dealer markup and use this information to your advantage.