Retail vs. Wholesale vs. Trade-In vs. Private Party Values:What are the Main Differences in the Used-Car Pricing Categories?
Vehicle valuation guides are divided into several different categories, each one with its own set of conditions.
Q: How are vehicle pricing categories established?
A: Categories are established based on the buyer-seller relationship. So if the buyer is a private individual and the seller is a dealer, the transaction is a Retail Sale and the value associated with that sale is the Retail Value.
The four major vehicle pricing categories are:
Additional minor vehicle pricing categories:
In this article, we will discuss the major four categories.
Auto Buyers and Sellers Defined:
Retail Value:
The retail value corresponds to a retail transaction where the seller is a dealer and the buyer is an individual.
The asking or advertised price by the dealer is normally not the transactional price.
Some dealers offer vehicles as “Certified”; this simply means that the retail vehicle price includes an extended warranty and roadside assistance. The warranty normally offered by the manufacturer of the vehicle, only a franchise dealer (Honda, Nissan etc.) can sell you a certified car.
Q: Why are retail values are the highest among all the pricing categories?
A: Vehicles offered under the retail category are usually:
Reconditioning usually includes tires, maintenance items (oil change, air filter etc.) as well as mending any cosmetic issues the vehicle may have.
When buying a retail vehicle, the Individual normally pays sales tax and administrative fees (doc fee) straight to the dealer who will process tag and title paperwork (Vehicle Titling Requirements in Georgia).
Doc Fees or Documentation Fees are pure dealer profit and give car buyers no added benefit.
Private Party Value:
The Private-Party value corresponds to a person-to-person transaction where the seller and the buyer are both individuals.
The Private-Party value is normally less than the retail value since the vehicle has not been reconditioned. In addition, the seller is not trying to make a transactional profit as they are disposing of their own property. Tag and title fees are normally paid at the motor vehicle office and not to the seller.
Another advantage of a private party sale is knowing the seller, asking them questions, requesting history records etc. In addition, most private sellers will allow you to get the vehicle inspected at a third party.
Please note that a private party sale is inherently AS-IS, there are no warranties or guarantees associated and sales are usually final.
Wholesale Value:
The Wholesale value corresponds to a dealer-to-dealer transaction where the seller and the buyer are both in the car business.
Dealer profit margins normally hinge on maximizing the difference between the wholesale and retail values.
Q: Where do car dealers get their inventory from?
A: Car dealers source inventory from:
Trade-In Value:
The Trade-In Value corresponds to an Individual-to-Dealer transaction where the seller is an Individual and the buyer is a Car Dealer.
The Trade-In Value is usually the lowest amount a vehicle sells for.
A trade-in allowance is a fictional amount, usually greater than trade-in value as it reflects a shifting of the discount from the car being purchased to the trade.
If a dealer sees you’re concerned more with the trade-in value than the price of the new vehicle, you will often time be offered more money for your trade rather than a discount on the new vehicle.
Trade-in is generally lower than wholesale since a dealer taking a car on trade has the option to either retail out of it or wholesale it. Either way, a dealer expects to make a profit.
We recommend that you not trade-in your vehicle without trying to sell it on your own first. Obviously there are many exceptions. Here are the advantages of trading-in your vehicle:
These advantages are usually outweighed by one disadvantage – by trading your car in, you always get less money for it!
Looking to buy or sell a car? Call us today to schedule an appraisal or a pre-purchase inspection. 678-404-0455
Guest author Jasen Rice shares advice on used vehicle pricing and how to use data to close gaps. Rice is the owner of automotive consulting agency Lotpop.
By: Jasen Rice
We are starting to see a huge gap between dealerships’ retail prices, especially on aged cars, and the Manheim Market Report (MMR) wholesale values.
In the chart below, you can see a list of vehicles over 60 days old on one dealer’s lot. You can see their average price to market is at 92%, yet the spread between their asking price and wholesale is $3,318. It gets even bigger when you look at their vehicles priced at or below 90% price to market. In that case, the average spread is $3,385. Going even deeper, you can see the 2015 Chevrolet Silverado’s $4,400 spread priced at 89% to market, and the 2018 Mitsubishi Outlander LE’s $4,700 spread priced at 90% to market.
Even though you think you are aggressively priced to the retail market, the wholesale tells a different story. This current situation puts dealers in a hard position because they don’t need to – yet – reduce their pricing more, as the retail market pricing seems to be holding. But, if dealers in the market start buying more wholesale and price it aggressively, then the dealer in this chart could be in a world of hurt based on the loss they would be taking on these aged cars.
So, should you go ahead and reduce the retail price to drive more retail sales and minimize the loss, or hold out and hope that the retail market holds? I have always said the “Obama, hope and change” strategy does not work for used cars. Your best bet is to always move cars as fast as possible to maximize your gross. But opting to “roll the dice” in hopes that your vehicle’s higher pricing attracts an uneducated buyer or that the market changes and your car suddenly becomes more valuable is not going to make your dealership as profitable as it could be.
This current situation is tricky. No one knows the right answer. But, I can tell you that if you are not seeing the traffic that you need or want right now, then make your cars more attractive. Then, go buy the replacement at a way lower price than you owned the last one for, and make up your profit there before the rest of the market starts playing catch up.