Explain how car dealers, flippers, auctions, wholesalers work?

[sugarwood]

Can someone tell me the various transaction cycles in this industry?

Who sells cars at auction?
Who buys at auction?

Do dealers sell trade-ins at auction?
Who buys at auction?

What is a wholesaler?
Does he buy or sell at auction?

Can someone working for a dealership sell his personal car at auction?
Who would buy it? How does the car end up back at some car lot for sale?

[LeeH]

See below in purple...

Originally Posted by sugarwood

Can someone tell me the various transaction cycles in this industry?

Who sells cars at auction? Licensed dealers - wholesale or retail
Who buys at auction? Licensed dealers - wholesale or retail.

Do dealers sell trade-ins at auction? Yes
Who buys at auction? Licensed dealers - wholesale or retail

What is a wholesaler? Licensed wholesale dealers can only sell to other licensed dealers - wholesale or retail. They cannot sell directly to the public.
Does he buy or sell at auction? Yes

Can someone working for a dealership sell his personal car at auction? Yes, but technically the transaction should be run through the business.
Who would buy it? Anyone at the auction.
How does the car end up back at some car lot for sale? Just like any other car - it's bought either directly by the retail dealer or by a wholesaler who then sells it to the retail dealer. It is fairly common for retail dealers to process retail transactions for wholesale dealers for a fee. In other words, a wholesale dealer can buy a car at auction, find a buyer, have the retail dealer process the sale. The retail dealer might receive a $500 fee to do this.

[sugarwood]

Ok, so both wholesalers and retail dealers buy and sell cars at auctions. If a wholesalers buys, it is with the intent to flip it to a retail dealer, or to sell it at another auction. The reason wholesalers exist is a physical one; dealers can not attend every auction that exists.

So this can be one scenario? Guy trades car in at dealer. Dealer does not sell it retail, but sells it at auction. Wholesaler buys the car at auction. Wholesaler then sells car to dealer #2, who sells the car retail.

[sugarwood]

What sort of margins do these parties generate in order to make it worthwhile?
Is there a general markup guideline that dealers and wholesalers tend to follow?

Can we do one hypothetical?
Let's say a car is worth $10k in a private party sale.
What would the dealer pay for trade in?
What would dealer sell it for at auction?
What would wholesaler sell it for to dealer #2?
What would dealer #2 sell it for?

[nota]

banks and loan CORPs inc
[some owned by car corps]
are also a supplyer of repo and off lease cars

I tend to hate the closed shop nature of these deals
a private party can't buy a repo with out a dealer getting a cut
why is there no free trade rules applied to a protected biz by dealers

I would suspect a 10k car sells for 8 to 9k at auction
and will retail for 11-12k on a dealers lot

btw my older brother was a sales manager at many dealers

[sugarwood]

Here is another question. How much money does a dealer want to make in order to bother trying to flip a car in the first place? Would they bother for $1000?

[SCadaddle]

Around here I've found that the retail dealers will take a trade in given it is not much more than 10 years old and less than 150k miles. They'll make their money on the new car sale and have less than wholesale in the trade in.

Next they'll put the trade in out on the used lot and ask really stupid money. The car will sit. The reason it will sit, besides the stupid asking price, is that a buyer is going to have a hard time finding a bank that will loan money on a car more than 6 years old and 150k miles. And cash buyers are hard to come by.

Finally once the car has sat unsold they'll run it through the auction. This is where the smaller dealers get in on the action. They'll buy the car at wholesale or less and either provide "in house" financing or have a lender that is more than happy to lend at an exorbitant rate to the buyer. No credit no problem!

[Tervuren]

Originally Posted by sugarwood

Here is another question. How much money does a dealer want to make in order to bother trying to flip a car in the first place? Would they bother for $1000?

Most new car dealers do not keep trades, they have contacts who take the risk of buying whatever gets traded in sight unseen.

The money is made from risk - the dealer calls the person who takes their trade ins, gives years, mileage, and the trade in buyer makes an offer sight unseen. Sometimes they get hosed by unknown problems, but they do enough volume, the benefit out weighs the risk.

As an individual, would you want to buy a car beyond model, year, and mileage? No inspection, sight unseen? They have a chance at profit, because the person wanting to dump the trade in needs to sell it now, the dealer doesn't want it, so it sells at a sight unseen price, with a high risk they just bought something crappy.

[jwhcars]

In Pa. If you have a dealer license and approved lot you can buy and sell wholesale & retail.

[McLovin]

We've had this discussion here before.

The bottom line is the margins are much smaller than most people think. The cars get bid up surprisingly high at the major auctions (like Manheim).

Some people here have gotten dealers licenses and tried it out and found out how high the prices are.

I had a collection of cars and a warehouse at one point, so it was easy for me to get a dealers license (was also good for tax purposes). I bought 20 or so cars at Manheim over the years. I ended up selling them all, and made money on all of them, but I could see that as a full time business, it would be very tough. The reason being the auction prices are to high and the margins too low.

[berettafan]

auctions, like ebay, have gone mainstream online so the margins have been getting squeezed big time. I have a car dealer client that watches auctions live all day online. they don't have to drive to the auction, just press a button if they like a particular car.

just too many people able to participate now for inefficiencies to exist like they used to.

[81Kremer930]

Dealers and individuals buy and sell at auctions. Some dealers are wholesalers/flippers, some are actual retailers with showrooms, sales personnel, etc. Usually the people selling need money, and the people buying have money. Hope this helps!

[wdfifteen]

I had a guy working for me one summer who worked at night repossessing cars for a Buy Here, Pay Here lot. From what he told me, BH,PH is where the money is. Buy a car for $10k, "sell" it for $20k, finance it for 5 years at 25% interest, and when the buyer can't pay after a few months, go get it and sell it again. The car is basically an excuse to collect interest.

[onewhippedpuppy]

Originally Posted by McLovin

We've had this discussion here before.

The bottom line is the margins are much smaller than most people think. The cars get bid up surprisingly high at the major auctions (like Manheim).

Some people here have gotten dealers licenses and tried it out and found out how high the prices are.

I had a collection of cars and a warehouse at one point, so it was easy for me to get a dealers license (was also good for tax purposes). I bought 20 or so cars at Manheim over the years. I ended up selling them all, and made money on all of them, but I could see that as a full time business, it would be very tough. The reason being the auction prices are to high and the margins too low.

Yup. I'm letting my license lapse after two years. Many many cars sold at auction for more than I planned to sell them for. You make your money on the cars based off of volume, you make the real money off of things like financing and service. It's not an easy business to make decent margins.

[LeeH]

Originally Posted by onewhippedpuppy

Yup. I'm letting my license lapse after two years. Many many cars sold at auction for more than I planned to sell them for. You make your money on the cars based off of volume, you make the real money off of things like financing and service. It's not an easy business to make decent margins.

Ditto. I'd go to the auction hoping to pay $10K for a car I thought I could sell for $12K. Less auction fees and a cut to the retail dealer, I figured I'd make $1000 net. Time and time again that car would sell for $12.5K-$14K at the auction.

I made more money buying off Craigslist and selling at the auction, but there are hundreds of guys doing the same thing. If you're not sitting on Craigslist hitting "refresh" over and over, ready to run out the door with $10K cash in your pocket, you're not going to have a chance. Even then, as you're running out the door to go buy the $10K car you hope to sell at the auction for $12K, some guy will call up and offer $10,500 or $11K.

[McLovin]

Yep, it's really tough.

And imagine if you had even ONE employee. Even at a very low wage, by the time you add in workers comp, payroll tax, etc. etc. that would be what, a minimum $40K expense? Really, $50K or more.

So, you can't have an employee.

But doing it all by yourself is very difficult, even on a small scale. Buying cars at auction, getting them home, repairs, sales, meeting with tire kickers, doing all the paperwork, etc., it's a ton of work for one person to do.

Then add in the costs. Insurance, warehouse, and the funds to buy the cars, at a bare minimum (obviously, there's a lot more).

If you have the cash to buy the cars to resell, there's probably better things to do with it. If you have to finance the cars, there's the interest and the hassles of that (if you can even get financing).

You end up doing a ton of work, a lot of hours, risk, and the headache of dealing with a flaky general public, for very little return.

It's a fairly low barrier to entry business. It's not hard to get a license, it doesn't require any education or experience, basically anyone can get one. And a lot do. In my area, these businesses spring up and then close down all the time. Some are tiny operations, but others are 10,000 square foot places with 25+ cars in inventory. Come and go.

It must have been different in the past. I knew independents who sold BMW/MB/Porsches through the 80s and 90s that stayed in business for 20 years, and from what I had heard did very well.

But even those long-term guys are gone now.

[greglepore]

You need a service department to make it work. We have a local Bimmer shop that sells a ton of cars from auction, but he started as a dealership wrench, then an indy, then an indy with 3 or 4 guys, now an indy with a large volume of used cars which then end up in his service fleet. Not a bad model.

[tabs]

The model is buy low sell high. Problem is the low is now too high to make any money. U can quote me.

I used that model with antique spoons and did ok. Never left home except to the shipping outfit. Now the buying prices have ratcheted up and the ROI is miniscule. So I have moved into the transportation business. Margin is at least 100% and as much as 1000% or better with an average of about 400%. I gotta tell u that 400% margin rate really makes me. ...ahh makes my day.

And I do sell Globally.

[jcommin]

Originally Posted by tabs

The model is buy low sell high. Problem is the low is now too high to make any money. U can quote me.

I used that model with antique spoons and did ok. Never left home except to the shipping outfit. Now the buying prices have ratcheted up and the ROI is miniscule. So I have moved into the transportation business. Margin is at least 100% and as much as 1000% or better with an average of about 400%. I gotta tell u that 400% margin rate really makes me. ...ahh makes my day.

And I do sell Globally.

Tabs is essentially right; Buy low, Sell high, Keep good records! The 3 fundamental rules of business.

I have a relative who was a new car dealer (retired) and he bought and sold cars at auctions. You need to buy it "right" because you might need to put money into it but not enough to chip into your ROI when you sell it for a retail price.

That's tuff because in the digital age, there is enough sell history on what cars are sold for. Unless you got something really special, it is a tuff business.

He also sold cars at auction - usually cars that didn't fit on his used lot or the condition of the car was so low adding value (putting money into it) offered little or no return. There is a market for those kind of cars too.

[sugarwood]

Why do auction cars always seem to be purged of their service history paperwork?
Is this a matter of course, where they intentionally throw away any paperwork?