Dealers That Buy Used Cars

Q.I'd like to buy 2004 Camry XLE V6. The dealer showed me the invoice price is $25316 (MSRP $28105). But the invoice price I get from MSN Autos is about $24850 including options and destination charge. Why are they different? What is the reasonable price in bay area (northern california)? below $24850, between $24850 and $25316, or above $25316?

A.The irony is dealers are making less money on their investment then they ever did. The guy at the appliance store makes more on a $1,000 refrigerator then is made on the average new car and buyers never even asks for a better 'deal' on the refrigerator. Back in the late forties when I was selling cars while going to college, the store averaged about $300 on a $1,300 vehicle. Today many dealers are settling for the hold back on a $23,000 vehicle, about $500. If it were not for the F&I guy selling all the smoke and mirrors, that can easily add $1,000 to the sale, it would not be worth the millions to buy a franchise. Many new car dealers can't 'turn and earn' enough new cars for their dealership to grow its share of the manufactures production. They need to buy used cars, just to make a decent return on investment. The only guys making money are those that own a bunch of stores, that can pool their inventory. It's tough to make it with one or two stores. Just look at how often some change ownership. Dealers that are selling oodles of cars but still not meeting the payroll are ripe for the megadealerships guys to take over. When the megadealerships guys are looking for dealership to buy one of the first things they look at is the new to used inventory ratio. If a new car dealer can not move his used stock or is buying used cars he heading for trouble. I was asked to help a dealer, a former NFL player that bought a store three years ago here on the east coast. His volume had dropped from over 500 units a month to less than 300. I know his problem before I ever got to his office. If a dealer expects to sell 500 units he needs 700 vehicle inventory on average and should not have more than 300 used cars. He had less than 200 new vehicles and over 450 used cars in inventory. Some of the new units still sitting on his lot had delivery dates from over FOUR months ago. My first question was why did you spend all those millions on a franchise just to go into the used cars business? His answer was, we can make more money on the used cars! Then why didn't you buy a used car lot? The problem of course is he ties up all of his capital in the used one and two year old cars he buys from the manufacture. Then he expects to "buy" his customers trades for the same price, that doesn't work and sales fall off. If the dealer doesn't give you enough for your trade you will gravitate to the dealer that does. In the car business the last asked and the most important question is always, 'How much is my payment?' If you you don't meet the buyers price the next guy, selling your brand down the road, will get the sale. Worse yet another brand gets the sale.

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