Where Do Dealerships Buy Used Cars? (Dealer Secret Revealed!)

The U.S. used car segment is double the size of the new car market and outperforms it in growth. The used car market offers a considerably countercyclical safe harbor from the dramatic price surge in the new car market. It can be daunting to deal with car dealers, but knowing how dealerships work can help you get the best deal on your next ride.

Car dealers stock their inventories with cars they bought at wholesale dealer auctions, closed sale auctions, customer trades, or direct purchases from customers. To sell your car to a dealer, you’ll have to have the right paperwork. It also helps to get your vehicle professionally appraised.

Buying or selling a used car might be a hassle, but it doesn’t have to be stressful if you’re well-equipped. Being cautious about where you sell or buy a car from a used car dealer may help you leave their lot with some extra cash in your pocket. Let’s take detailed look at how dealerships work and the best strategies for selling your car.

Where Do Used Cars at Dealerships Come from?

Row of different used cars

The way car dealers obtain their supply of used cars isn’t a secret. It also isn’t the result of some shady deals.

Here’s where used cars really come from:

Wholesale Dealer Auctions

Wholesale dealer auctions are all over the U.S., but aren’t open to the public. These auctions supply about 10 million cars to dealers annually, and only dealers can attend them.

At these events, dealers bid on SUVs, trucks, and cars, and most are sold without test drives. Sometimes these auctions are specialized. Some sales only sell vehicles of a particular type, like SUVs or pickup trucks, or they focus on off-lease vehicles or special dealer consignments.

Typically, the histories of the vehicles at these sales range from repossessions and previous trade-ins to cars previously in serious accidents. At these auctions, dealers buy cars at prices below retail values.

Wholesale prices usually range from a meager discount of 5% to 50% of the retail value. Late-model cars with low mileage sold to car dealers sometimes qualify for the certified pre-owned category after inspection and some refurbishment.

Trade-ins

Cars traded in by buyers are another reliable source of dealership used car inventory. To avoid the challenges of selling a car privately, some new car buyers decide to trade in their older cars, giving them to the dealer and extending their value into the purchase deal of the new vehicle.

Trade-in values are below the vehicle’s retail value allowing the dealer to make a profit when selling the car to the next buyer.

If the dealer cannot sell the car for a preset amount of time, they can sell at a wholesale dealer auction. Either way, this car will end up as part of another dealer’s inventory.

Lease Returns

In the case of lease returns, the car is returned to a dealer at the close of any lease term, and the returned car ends up in the dealer’s used car inventory. Usually, lease returns are newer, low-mileage cars.

Leases limit mileage to 12,000 miles per year and run for a maximum of three years. Because of this, lease returns typically qualify for a certified pre-owned program.

Closed Sale Auctions

The National Automobile Auction Association limits the number of auctions to 360 every year, from the major to surprisingly small ones.

Each auction falls under one of two categories: a closed auction or an open auction. An open auction means any registered dealer can attend. Sellers usually include other dealers, lease companies, fleet companies, and financial institutions with repossessions and lease returns.

Close auctions usually limit attendees. For instance, a car manufacturer can invite only franchised dealers to its auction, and this gives the manufacturer’s dealers the first pick at quality used cars.

Direct Purchases from Customers

Sometimes, customers walk into the dealer’s lot and ask if they’re interested in buying their vehicle. If the dealer finds the price favorable, they can buy and place it in their used car inventory.

Direct purchase from customers is common, and it’s a major source of cars for dealers. Some dealers also run adverts telling customers they are willing to buy their used vehicles.

How Do You Sell Your Car to a Dealer?

If you want to avoid the hassle of making a private sale, you can sell your car to a dealer. Selling your car to a dealer saves you the long, laborious process of finding a willing buyer.

The process of selling your vehicle directly to a dealer is straightforward. Dealers handle many transactions, so their buying process is likely fast.

Here are tips on how to sell your car to a dealer:

Make Your Car Presentable

Dealers thoroughly inspect your car before buying it. Though your vehicle may deem fit for a new owner, you need to evaluate its cosmetic and mechanical condition before taking it to a dealer.

One way to demonstrate your car’s worth is by paying for a professional appraisal or mechanical inspection.

Shop around

Don’t just accept an offer from the first dealer you visit. Talk to as many dealers as you can and give them a chance to inspect your car before they give you an offer. Doing this helps you conduct market research.

If you wish to get a new car from the dealer, don’t discuss it until they buy your old car because some dealers could hike the value of the new car to cover what they’re paying for your used one.

Gather the Necessary Paperwork

You’ll need specific papers when selling your car. One among those is the car’s title, which proves you’re the legal owner. If you’re still making payments on the car loan, make sure you bring all the relevant loan paperwork to help the dealer seal the deal.

How Much Profit Do Dealers Make on Used Cars?

Perfect car selection

Dealers make an average of $500 to $3,000 in profit per car. The exact figure is determined by factors like the make and model of the vehicle, the mileage, the repair/refurbishment costs, and the persuasive ability of the salesperson.  

How Much Commission Do Car Salesmen Make?

How much commission a car salesperson makes depends on several factors, simply because every dealer will have a different commission plan for their salespeople.

However, there are some generalized rates to look at. Typically, a car salesman makes a 25% commission on a car sale.