How much do dealers markup used cars and how do they calculate their margins?

How much do dealers markup used cars and how do they calculate their margins?

Like any other business, a used car dealership needs to purchase cars and then resell them to customers. Understanding how much they markup their cars and how they calculate their margins can be very helpful to customers who are trying to negotiate the best price on a used car purchase. How Much Do Dealers Markup

Like any other business, a used car dealership needs to purchase cars and then resell them to customers. Understanding how much they markup their cars and how they calculate their margins can be very helpful to customers who are trying to negotiate the best price on a used car purchase.

How Much Do Dealers Markup Used Cars?

This can be a difficult question to answer. Like most things with used cars, there is often more art than science to it. Estimates also vary but generally hover between 25-45%. This means that used car dealers will make between 25-45% profit on a car that they sell. This includes all costs related to the acquisition, repair, and cost of the car, as well as factoring in other overhead costs, such as like seller commission. Of course, this is why car dealers are typically reluctant to have you pay less, as any discount they give you cuts directly into their profit margins. 

How Do Dealers Calculate Their Margins? 

As noted above, a margin is calculated by the cumulative cost of purchasing a car. It is worth keeping in mind that no dealer receives a used car and then immediately turns it over for sale. Many costs go into getting a car ready for sale. These include:

  • The purchase of a car. Sometimes, if a car is a trade-in, the cost of that purchase comes out of a dealer’s pocket in the form of a discount on a new car. This can add an entirely different level of calculation to a new car. 
  • Car repairs and cleaning. The worse shape a car is in, the more cleaning is required. This, of course, will cut into a dealer’s profit margin, although they may have facilities on site that can complete this work and enable a dealer to save money.
  • Other miscellaneous costs. Different dealers operate differently, but sometimes, a dealer may purchase cars from another area and then have to pay for those cars to be transported to their dealership. This involves the costs of transportation and staff time associated with getting the car to their dealership. There may also be taxes, licensing fees, titling, and more that can add to overhead costs and ultimately cut into their profit margins. 

These are important factors to keep in mind when not only buying a used car but turning in your old one. If you can keep all of these in mind, it may be possible to better present your car to a dealership, allowing them to save money. This, in turn, can hopefully be passed along to you. 

Daniel Hughes
Daniel Hughes
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