Why Dealers are Trying so Hard to Get Your Trade-in, New Car Deal or Not

NEW YORK (MainStreet) — The next high-pressure sales pitch you may face in an auto dealer's showroom could be to buy your trade in. Whether you buy a new vehicle or not. While new car profit margins have narrowed, used car sales are generating growing profits -- and dealers are anxious to add to their inventory.

The National Auto Dealers Association (NADA) reports that the average gross profit on a new car sold by a dealer in 2013 was $1,200, down 7% from 2012. But the profit on the sale of a used car topped $2,300 – a 13% increase from the previous year. And sales volume this year is expected to be the highest for utility vehicles, subcompact cars and luxury cars.

Tight supplies for trucks, especially mid-size vans, large SUVs and pickups, will boost prices even higher this year, according to the NADA.

Also See: GM Proves America Can Still Drive Big

Rather than liquidating most of their trade-in vehicles at wholesale auctions, dealers are anxious to sell more of them directly to consumers, at a healthy retail markup.

"We really need robust, high-performing used-car sales in our stores," George Athan, vice president of sales at DCH Auto Group of South Amboy, N.J. told Automotive News. "It generates service and parts business and repeat customers. It's a critical, critical part of our business strategy."

Pricing transparency for new vehicles is at an all-time high, as consumers can easily research in-depth cost information on the Internet. But used car values can be a bit more opaque, depending on an individual vehicle's model, mileage and condition. So new car dealers are expanding their used vehicle sales departments and using advanced data resources to maximize profits. In 2013, sales of manufacturer certified pre-owned vehicles totaled a record 2.1 million units, according to the 2014 Used Car Market Report issued by Manheim Consulting.

"Dealers using the latest inventory management software suites are no longer willing to let used cars sit on the lot for 90 days," the Used Car Market Report states. "These progressive dealers seek quicker inventory turn times and will often accept a small initial sale loss to free capital for another vehicle purchase."

The reconditioning of used vehicles is key to boosting resale value, so it can also be instrumental in getting the best price from the dealer on your trade-in. Manheim says the top repairs that increase a vehicle's value most include:

  • 1. Replace, refinish, repair major body panels
  • 2. Replace, repair interior items
  • 3. Replace, repair windshield
  • 4. Replace, repair, refinish mid group body panels (bumpers, covers, etc.)
  • 5. Hail damage repair
  • 6. Install a bedliner

--Written by Hal M. Bundrick for MainStreet

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