Car Dealer Pricing Strategy Tips Part One

eBay Motors apparently gets your attention. Several people contacted me to say they felt cheated and that I held back information on car pricing strategies from here. I did say that I could fill a virtual book with information on used car pricing strategies and I mean that. Alas though, I want no one to feel cheated by me or any other used car salesperson for that matter so I'm going present some various strategies intermittently here, both on how to help you determine the best price and to keep things interesting, some explanations of the "to good to be true"advertising put out by far too many car dealers.

Today I'm going to explain the "push it in, drag it in, we'll give you a ridiculous amount of money for it" ad style that your sure to find on any given Sunday in the local paper. These car ads walk a fine line between truth and lie. Will you, Mr. or Ms. Car Buyer really get a ridiculous amount of money for your trade? Well, probably not so much.

First, you are most likely to see these ads primarily for new cars. Occasionally you'll see them in relation to gently used vehicles or "certified" used cars. The car dealer relies on factory incentives to make this ad work. Read the fine print on these ads and you're sure to see that the dealer is retaining all rights to any and all cash rebates or special finance offers. The dealer will usually also state in the fine print that to receive the maximum ridiculous amount of money for your trade you must pay MSRP for the car you are buying.

The dealer eliminates almost all possibility of loss by doing this and also eliminates almost all possibility of any true savings for you in the process. The following example is for a new car ad that states no matter what (except for the fine print, which apparently isn't included in the what) you, Mr. or Ms. Car Buyer, will receive $5000.00 for your used car trade. The ad will be targeted to only a few new car models and may be limited to specific option groups as well. This is because the car dealer is making the $5000.00 offer for your trade valid only on the new cars with the highest factory rebates.

Folks I don't care what used car you own or what kind of shape it is in. If you tow it in and you have a clear title your used car is worth a minimum of $200.00 either to a wholesaler or a scrap yard. If you can drive your used car in, it is pretty much worth $300.00 to $500.00 no matter the car's year, make, model, or condtition. Now that your minimum used car value is known let's apply the rest of the math to this deal.

For this example you are buying a 2008 Supermotors SuperCar with the SE package. Currently Supermotors is offering a $3000.00 cash rebate for any customer who buys a SuperCar SE model before April 30th. Your dream SuperCar SE has a MSRP of $23000.00 and an invoice price of $20000.00. Your Supermotors car dealer is offering a minimum trade value of $5000.00 "no matter what it is!" You, Mr. or Ms. Car Buyer are the proud owner of a Worstcar Worstmodel with the Ever package. Being a savvy car buyer you have done your homework and you know that your Worstmodel Ever is worth barely $500.00. You, Mr. or Ms. Car Buyer are now looking for your shoes and keys because you can't wait to collect your extra $4500.00.

For those of you keeping score at home, you probably realize that your friendly Supermotors car dealer is actually advertising nothing but a guaranteed profit for himself. The rest of you are now scrambling for a calculator. Settle down. Here's the explanation:

The Supermotors dealer has a profit margin of $3000.00 for his SuperCar SE. The dealer fine print states clearly that to receive your $5000.00 trade allowance you are buying your SuperCar SE for MSRP. Better still the fine print tells you the Supermotors dealer is also keeping the $3000.00 cash rebate currently being offered on the SuperCar SE. Your oh so generous Supermotors dealer is now working with an front-end profit of $6000.00 before your Worstmodel Ever is factored into the deal.

The Worstmodel Ever is valued at $500.00 for this deal, remember? The Supermotors dealer has a profit margin of $6000.00 but gives you, his valued customer, $5000.00 for your car. So the Supermotors dealer now has made a healthy $1500.00 profit on your new Supermodel SE purchase. This of course is arrived at by adding the true value of your trade ($500.00) to the difference of the front-end profit minus your trade allowance. ($6000-$5000=$1000) Who is really getting the good deal now?

I simplified the above example as much as possible to make sure everyone understands the methodology behind the advertisement. I intentionally did not go into various things like sales tax, hold-back, dealer rebates, and the potential profit of the trade to keep things simple. I also did not touch the financing of the deal which opens up an entire additional channel of profit to the Supermotors dealer in this example.

For those who felt cheated, hopefully you feel a bit better now. I'll be sure to post more pricing strategy information for your next new or used car purchase as time goes on. My next post will have nothing to do with pricing though, so consider yourself warned. As always, thanks so much for stopping by and I can't wait to see you next time!