October 3, 2023

Markup is usually the difference between what a dealer paid for a used car and the amount they sell it. On average, markup ranges from around 10% to 35%. The percentage may sometimes include processing and repair costs. However, this is not always the case.

When you consider purchasing a car, you should check with dealers. This will help you select a car selling site that has better price options.

However, finding lower price deals is not good enough; it is also essential to consider other factors, including the car condition and preferences. The following are some factors that play a part in determining a used car markup.

The Amount Paid for the Vehicle

Most private sellers prefer selling their cars to car dealers through auction, wholesale, or even trade-in. The amount incurred for any vehicle depends on mileage, market demand, model, and car age.

When the dealer pays a higher price for a used car, the car will cost more than when it’s bought at a lower price. However, the dealers also consider market demand when paying for these cars. If a particular model is of higher order, most dealers will see it worth paying the high price. Nevertheless, dealers consider other factors to ensure that they recover the investment within the shortest time possible.

Cost and Type of Repairs

If the dealer has incurred some repair expenses, they might include that cost on the markup. Some of these repairs are expensive, and this will translate to a higher markup than it could have been for minor repairs. Most buyers prefer used vehicles that don’t require repair or minimal maintenance over those requiring extensive maintenance.

Overhead Costs

Typically, overhead costs are additional expenses incurred other than paying for the used car, including the transport cost. Most dealers usually include all the overhead costs in the final price. Generally, used vehicles with substantial overhead costs will cost more once the dealers add their markup.

However, buying from a far distance might mean lower prices for the used cars even with the transport overhead cost. Most dealers are not willing to incur more overhead costs as this will mean higher prices for buyers. The main objective of any dealership is to make a better profit, so overhead costs are a crucial factor to consider.

Possibilities of Negotiation

Most buyers will attempt to negotiate for the used car price. With this in mind, dealers usually have their markup on a higher level. By doing so, they allow room for the buyers to negotiate. Additionally, this helps dealers sell the used cars at a profit.

When you consider buying a car, bear in mind that dealers are there to make a profit. The profit gained by any dealership usually depends on market demand and individual needs. It is essential to have several options when buying a car based on your preference and budget.

How to Mitigate or Avoid Dealer Markups

The Art of Negotiating Car Markups

Negotiating dealer markups is essential to get the best deal possible when buying a used car. Knowing your budget and how much you’re willing to pay are the first steps to beginning the process. It’s also important to consider current industry conditions, such as chip shortages or inventory shortages, that may result in higher-than-normal sticker prices.

Target a Reasonable Percentage

Once you’ve identified the model you’d like to buy, begin by making a realistic offer, but at 15 to 25 percent lower than your highest figure. Name your price and wait for a response. Be courteous but hold firm to your original figure after receiving any counteroffer. If you must raise your offer, move your bid to $100 at a time.

It’s important to state when you’ve reached your last offer and stick to it. Let the seller know your offer is fair and final and is only valid for 24 hours. If the seller remains firm, walk away rather than pay over the odds. 

When shopping for a used car, it’s crucial to ask if it has any dealer markups or add-ons. Dealerships are likely to mark up the price of the vehicle’s accessories by 40 to 50 percent over what it paid. 

Other Considerations Before Buying a Used Car

While negotiating with the dealership, considering markups is essential. You may end up paying thousands of dollars over the original price. Processing fees, dealer fees, and inflated prices can add up fast. 

Overall, it’s essential to negotiate with the dealership when buying a used car and strive to reach a reasonable list price close to the dealer’s cost. Don’t be afraid to ask questions, and don’t forget to factor in any possible extra charges before signing on the dotted line.