How To Buy Wholesale Used Cars
Right Off Dealer Lots
This particular used carbuying technique is incredibly effective. On the plus side, I've used it to buy cars at prices similar to those at wholesale dealer-only auctions, or frankly, even a little better. Also a plus is the fact that anyone can do this and it can be done right from home with no dealership contact until you actually buy the vehicle at the end. So, it's 98% done from home and is pretty much stress-free.
On the downside, it takes patience and will likely take from a few weeks to a few months, although it only takes a few minutes of your time each week as you're following the process. So, it's really not meant for those who need to buy a used car in the immediate future, like this weekend. That said, if you need to buy a car in the short term, here's another super low price buying guide that would be better for you.
This strategy revolves around the fact that the best time to buy a used car is when you don't really need one ... when you can take your time, be highly selective and only pounce on a deal when it's absolutely screaming, "Buy, Buy, Buy!"
It also revolves around identifying what I call "distressed vehicles". What's a distressed vehicle? Well, it's simply a vehicle that's been sitting on a dealer's lot for a long time racking up significant finance and carrying costs. In other words, the dealer has been taking a bath on this one and desperately needs to get the vehicle off the lot and move on with other vehicles.
These particular vehicles are just hemorrhaging money and the dealer simply has to stop the bleeding. And yes, selling such a vehicle at a loss stops the bleeding. It's actually a win/win when you think about it. The buyer gets a great deal and the dealer finally puts an end to the money drain.
How It Works - A Real Life Example:
I think the best way to describe this technique is to actually take you through a real example. Although I've told many people about this strategy, I'm just getting around to writing about it now. This example took place in the spring of 2008 (before the financial crisis that occurred in the fall) and is every bit as applicable today as it was then. In fact, I'll likely be following this exact same procedure later this year or early next on another car purchase.
At the time, I was in the market for a 2004 to 2006 BMW 325i with low miles and preferably one owner. The first thing I did was go to AutoTrader.com to search their listings. I did a search within 100 miles of my zip code because I'll certainly drive that far, even further, to save a few thousand dollars. I then saved that search so I could come back and check it regularly.
Now I had a list of all the vehicles I was interested in listed from highest price to lowest. Going through it I could see some really nice cars as well as some very high mileage or banged up ones I had no interest in. But within just a few minutes of simply comparing mileage and prices, I could already figure out those that seemed priced too high in relation to others and those that seemed competitive, as well as a few that stood out as less expensive (again, within the low mileage group I was interested in).
But instead of racing out to buy one of the lower priced cars, I now settled in for the long haul. It was time to locate the distress vehicles.
Every few days, I would take a few minutes to check back on this list (I would recommend at least once a week). Vehicles would come and go. Prices were lowered on some as they didn't sell. Over a period of about three weeks I really had developed a "sense" for good prices for this particularly vehicle. No expertise was needed. Just by continually comparing prices it became fairly obvious. And a few were now on my radar as good, attractively priced candidates.
As time went on I saw many disappear from the list, apparently sold, and new ones added. I also saw several that were always there, time after time. Yep, these were the ones that weren't selling, for whatever reason. These were the likely cars that would become "distressed".
You see, most used car dealers purchase their inventory at dealer-only wholesale auctions. But they don't pay cash. They finance them via a loan. And these loans require payments every thirty days. At first, just interest. But after 45 days, interest plus principal. They also pay original auction fees, vehicle reconditioning-for-sale costs and the vehicle's portion of the advertising and lot expenses.
When a car doesn't sell for two or three months, it gets very costly for the dealer and also effects his cash flow as each payment now requires two or three thousand in principle. Dealers don't want this kind of upfront investment in a car before selling it. They want to sell the car quickly with little interest expense, use the buyer's money to pay off the principal and then bank the profit. When that starts not to happen, uh-oh, prices start to fall.
Josh with his new BMW 325i
Closing In On The Great Deal:
By sometime around the third month I had missed some opportunities. Several of the cars I had identified as really good buys had been sold. I had become maybe a little too greedy and waited too long. I was a little mad at myself. But I knew if I could remain patient other opportunities would arise.
And they did in month four. Based on prices and mileage, I had pretty much focused in on a 2005 model (a 3-year-old model at the time). Kelley Blue Book valued one with average mileage (about 15,000 a year) at around $20,900. I figured that a dealer was buying them at around $18,000 - $18,500 at the auctions with that kind of retail price. And that's really the price I was shooting to hit, or hopefully beat.
One day I noticed that one of the 325i's I had my eye on dropped from $18,900 to $18,000 even. I hadn't checked in a few days and didn't know exactly when they dropped the price. I quickly called the dealer. Geez, missed again! Sold the day before.
But within 48 hours I caught the move I was hoping for. Another candidate I was interested in dropped $2,000 to $16,900 (yep, that's it, and me, above). The kicker on it was that it only had 27,000 miles on it. I immediately called the dealer.
When buying a car I never recommend interacting with a salesperson. They usually don't have much authority. So, once I verify that the vehicle is still available, I always ask for the owner. And at smaller dealerships, say 30 to 100 cars in inventory, he usually deals with individual customers. But at this dealership, I was told the owner only comes in once a week (turned out he owned multiple businesses), so my next preference was to deal with the Internet Manager, who I was connected with.
This particular dealership was small but high end. Had about 50 cars for sale and all top-of-the-line type of stuff ... BMW, Mercedes, Land Rover, even a couple of Maserati's and Aston Martins ... and had been in business for about 12 years. (I always ask how long because a dealership that has managed to survive a while has more credibility with me. It's also easier to search for complaints about them to check for potential problems.) And they were located in Miami, about 65 miles south of me.
The first thing I did was tell him that I was a serious buyer and that I would buy it today if we came to an agreement. I told him I didn't want to drive all the way down just to be disappointed in the condition of the car and asked him to tell me about it. He said it was in outstanding shape and if that was my concern not to worry at all.
I told him I noticed it had been on his lot for a while and asked why he thought it hadn't sold. He said he really didn't know and that sometimes it just happens. He said he actually had signed contracts on it twice, but in both instances the loans didn't go through.
And while I was ready to buy that car at $16,900 as a great deal ( I figure about $4,000 less than retail and very likely less than wholesale) I couldn't help but take a try at bargaining a bit more. "Look it", I said, "If I drive all the down from West Palm Beach this afternoon, assuming I like what I see, will you make it worth my while in terms of price?" His reply was, "Absolutely. I'll make you a great deal". Okay, a nice bonus. He was willing to deal a bit more.
He faxed me the CarFax history report which verified that it was a one-owner, off-lease vehicle that had never been in an accident. (Incidentally, it's not necessary to buy a CarFax report. The dealer will always give it to you.) So off I went with the wife to Miami.
Long story short, the car was in great shape. Was obviously garaged and well cared for ... still had that original new car smell in fact. Drove great, looked great. I told him I'd buy it right now for $15,000. He said he just couldn't do that but would take off $500 to $16,400. Although already thrilled, I grimaced for a second and offered $15,600. He hemmed and hawed and then said he would do $16,000 but just couldn't do a penny less. I hesitated a second, then stuck out my hand and said, "Done".
So, the deal was done ... around five grand below retail ... a low-mileage BMW at Toyota prices.
I hope this example will help others save thousands of dollars on their next used car purchase. Be patient. Watch the competition. Watch for the "distressed vehicles". And good things will happen.
Josh with his new newly acquired BMW Z4
A Second Quick Example:
As fate would have it, while I was doing the paper work for the above 3-Series my wife fell in love with a BMW Z4 that was also for sale there. Over the next few months she really developed a hankering for a sport convertible, and a Z4 in particular. Then we had some unexpected and expensive repairs on her current vehicle. It was six years old and I figured it was probably a good time to jettison it before it got really expensive to maintain.
So, I started the process again.
I don't think it's necessary to go through all the details a second time because it pretty much mirrored the example above. The good news is that I found what I was looking for in about two months this time. Again, the car was in Miami (I think the deals are better in larger cities because there's more competition), I again focused in on a 2005 model and the numbers turned out to be similar as well.
Long story short, a car I had my eye on suddenly dropped to $16,900 (again) despite a Kelley Blue Book of $21,800. It had 46,000 miles on it. Although this was a little higher mileage than I liked, it still had a couple of months of factory warranty left, was again a one-owner vehicle and was in outstanding condition.
I used the same approach in contacting the dealer and this time was able to deal with the owner. Again this was a small dealership with about 40 nice, late-model used cars in inventory and had been in business for about 15 years.
But in this case he said he just couldn't do anything more about the price. He was at absolute rock bottom already. And based on all other prices I had checked out, he certainly was. I would have paid $18,000 for it and it would have been a great deal at that price. $16,900? Already a steal! I headed for Miami.
The car checked out in spades and my wife was in heaven. But when we sat down in the owner's office to finalize the deal I couldn't help but at least try to bargain one last time. The owner repeated that he just couldn't go any lower and as far as he knew there was nothing priced like it in the entire state (he was right). He then said that he would give me a choice. I could buy it at $16,900 or he would show me his dealer-auction confirmation and sell it to me for what he paid. It was obvious he paid more than I was buying it for.
He needed to raise cash and sell the car right now. If I didn't buy it at this incredible price, somebody else certainly would in the next day or two.
So, the deal was done. Again, a BMW sports car at Toyota prices.
One Final Related Point:
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Before writing about this strategy, I'd told some friends and family members about it and have helped them through the process. Once in a while, you may find a vehicle priced like a "distressed vehicle" that really isn't. It's just an incredible, below wholesale deal.
Sometimes this happens when a dealer resells a trade-in where the customer accepted a real low-ball offer. Let's say the dealer got an $18,000 valued trade-in for $15,000 because the customer wasn't well informed or bought the car based on monthly payments and not on vehicle price (big, big mistake). The dealer might then tack on a $2,000 markup and sell it for a quick sale at $1,000 below wholesale ... a win for everyone except the poorly informed person who traded it.
So, there are some great deals that can fall in your lap from time to time. Be on the lookout for a couple of months and you just may come across one.
Again, I hope this has been useful and will help you save a few grand next time you buy a used car.
Happy car hunting! - Josh