What is in this article?:
- Auto Dealers Who Ignore Pricing Intricacies May Be Paying Too Much
- What We Had
- So What’s the Point?
Price transaction transparency is why TrueCar and others are making fortunes soothing retail buyers’ fears of paying too much for vehicles. Why so many dealers don’t take advantage of the same sort of price information on the wholesale side is hard to understand.
So What’s the Point?
There are a large number of dealer buyers that either won’t look at the data available, don’t understand it or don’t care if they pay more than everyone else for the same thing. Their actions cost themselves and the dealers that do have knowledge of current market values income and thereby subsidize the sellers.
Their action is what an economist would call irrational behavior. Or, as my old aunt used to tell me, “If you can’t buy it right, there is no need to try to sell it.”
I hope to show the reader a little basic statistics that easily can be applied to save them money or at least not lose any more than they need to.
Here are some real world examples:
If you go to the ADESA market report tab and look at the ’12 Chevrolet Impala, which I picked for no reason other than there have been a lot of them remarketed lately and it is a 1-click function to download the data, you will see that between Oct. 1 and early December 2013 there were a little more than 325 LTs sold through ADESA locations.
Sale prices ran from $3,900 for a 67,000-mile (108,000-km) black one in Los Angeles to a $14,000 one sold in Cincinnati with 18,563 miles (29,873 km) on it. In this group of more than 300 units, the average unit was a 41,375-mile (66,585-km) car that sold for $10,794.
However, no unit with those miles sold at that price. The modal unit, or the most typical occurring unit from a statistical point of view, was a 32,625-mile (52,526-km) car that brought $11,500.
If you look at the scatter graph below, you will see clearly that a large number of dealers paid a lot more money than others did for the same make model of car with close to or identical mileage.
To make this a little more manageable, let’s take the units in the list that had actual transaction prices between $10,000 and $10,500. There are 35 of them in this sample. If we plot them on a graph a quick glance will show that at $10,500, purchasers paid the same for under 30,000-mile (48,000-km) units and 58,000-mile (93,000-km) units.
It certainly makes one wonder if the dealer with the 40,000-mile (64,000-km) units purchased at $8,500-$9,000 is going to have an advantage over the dealer that paid $12,000. I am well aware that condition will have an impact, but 50% seems like quite a stretch.
How would the sellers respond to this? Look at the prices in the first chart at the 30,000-mile grid. You will see some sales at $12,300 and $10,000. Is it any wonder they will ratchet up their floor prices to $12,300 and try that for a while, especially with hard data that some dealers in some places actually paid that for 40,000-mile units, even though others paid the same for units with mileage in the high teens?
You can bet your last dollar on it.
A little homework will go a long way. The market always will win over time, but in a situation like we see now, with a handful of sophisticated sellers currently sitting on nearly 100,000 units that need to be remarketed, it may be worthwhile to pay attention to what really is going on.
John Schmid is an industry veteran, former firstname.lastname@example.org dealer and economic developer. He is a past chairman of the Kansas Auto Dealers Assn. and served for a number of years as its legislative chairman. A graduate of the University of Kansas School of Business and the Chevrolet School of Merchandising, he can be reached at