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  #1  
Old 11-29-2004, 07:52 AM
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What is a fair dealer profit amount?

What is a fair dealer profit on a $20,000 to $25,000 pre-owned 5 series? Is there a percentage or is it typically a flat amount?

Iím ready to make an offer on a car and I want to make sure I allow for a reasonable profit for the dealer.

Thanks,
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  #2  
Old 11-29-2004, 08:02 AM
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Quote:
Originally Posted by Andy
What is a fair dealer profit on a $20,000 to $25,000 pre-owned 5 series? Is there a percentage or is it typically a flat amount?

Iím ready to make an offer on a car and I want to make sure I allow for a reasonable profit for the dealer.

Thanks,
Andy
There's no real way of determining what's a fair profit on a pre-owned 5 Series. You just have to make a fair offer based on what the condition is of the car you're considering, mileage, and market conditions for that particular vehicle (ie, what others like it are going for.) Interestingly, sometimes a dealer can pay too much for a car or spend a lot of money reconditioning the car to make it ready for sale and might be asking what they own the vehicle for and conversely, the same can be true of the dealer getting the car for a low value and not have to spend much on recon. The most important thing is that you like the car, trust it's reliablilty, and can't find something else in the market similar to it. That's the thing with pre-owned cars, every pe-owned vehicle is unique.
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  #3  
Old 11-29-2004, 08:31 AM
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Originally Posted by adrian's bmw
There's no real way of determining what's a fair profit on a pre-owned 5 Series. You just have to make a fair offer based on what the condition is of the car you're considering, mileage, and market conditions for that particular vehicle (ie, what others like it are going for.) Interestingly, sometimes a dealer can pay too much for a car or spend a lot of money reconditioning the car to make it ready for sale and might be asking what they own the vehicle for and conversely, the same can be true of the dealer getting the car for a low value and not have to spend much on recon. The most important thing is that you like the car, trust it's reliablilty, and can't find something else in the market similar to it. That's the thing with pre-owned cars, every pe-owned vehicle is unique.
I had been told that pre-owed cars were more profitable, than new. This almost makes it sound more of a crap-shoot versus a fairly depedable profit margin on a new car. As a customer it is hard to know if the price you are trying to negotiate is screwing the dealer or not.
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  #4  
Old 11-29-2004, 10:43 AM
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look at the kbb trade in value on the vehicle in average condition. then see how that compares to the price and go from there. try to lowball the dealer so that when you negotiate, you still have room to increase.
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  #5  
Old 11-29-2004, 11:46 AM
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I have access to black book values, fair market values and average auction prices, so I can pretty much figure out how much the dealer paid for the car (in most cases). I then take that amount add what I think the dealer spent in prepping the car and any maintenance work the dealer might have done based on the service records that the dealer gives me (i.e. Inspection I / II). Iíll then add what I consider to be a reasonable profit for the dealer and make that my offer. I donít believe in haggling over the price of a car, Iíll make a one time offer that I think is win / win for both myself and the dealer. If they accept my offer great, if not, I donít buy the car.

But what I need to know is, what is a reasonable profit? All I need is a ball park figure, is it $1,000 is it $2,000Ö is it $5,000? In order for me to make a one time reasonable offerÖ I need to know this. Would a dealer really want me to determine what their profit is?
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  #6  
Old 11-29-2004, 12:38 PM
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Quote:
Originally Posted by Andy
I have access to black book values, fair market values and average auction prices, so I can pretty much figure out how much the dealer paid for the car (in most cases). I then take that amount add what I think the dealer spent in prepping the car and any maintenance work the dealer might have done based on the service records that the dealer gives me (i.e. Inspection I / II). Iíll then add what I consider to be a reasonable profit for the dealer and make that my offer. I donít believe in haggling over the price of a car, Iíll make a one time offer that I think is win / win for both myself and the dealer. If they accept my offer great, if not, I donít buy the car.

But what I need to know is, what is a reasonable profit? All I need is a ball park figure, is it $1,000 is it $2,000Ö is it $5,000? In order for me to make a one time reasonable offerÖ I need to know this. Would a dealer really want me to determine what their profit is?
Unfortunately, to most dealers, when it comes to pre-owned, the margin of profit can vary from car to car and variables like inventory age and recon come into play, so finding a dealer willing to charge $X over cost will be very difficult.

If you concentrate on finding out what a reasonable value is on the car you interested in based on condition, mileage, and black book, I think you'll find that you can negotiate a fair deal.
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Last edited by adrian's bmw; 11-29-2004 at 12:44 PM.
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  #7  
Old 11-29-2004, 01:34 PM
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I guess I thought it would be more cut and dry then that. From a business perspective, I would think that dealerships would want to set a bare minimum profit on each car. But then again, Iím not in the car industry so Iím sure there are a lot of other factors that Iím not taking into considerationÖ like you mentioned


Another question if you donít mindÖ

On an average, how much cost does a dealer have in CPOing a car? I know that the dealer has to inspect the vehicle and then replace any worn parts, but is it just labor involved? Does BMWNA help the dealer out in CPOing a car? What other costs do the dealers have that I may not be thinking of?

The price on CPO cars, a lot of time, seems over inflated. Now granted, I understand that with a CPO car I have the assurance that worn parts have been replace and I have the 6 year / 100,000 mile warrantyÖ but adding $5,000 to a KBB Private Party value seems a little high, especially if thereís only a year left on the warranty.

I donít want you to think that Iím complaining, Iím just trying to fully understand things from the dealerís perspective. Doing so will allow me to truly understand the real value of the car and be able to make an acceptable offer.

Thank you for your responses.
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  #8  
Old 11-29-2004, 02:03 PM
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Quote:
Originally Posted by Andy
I guess I thought it would be more cut and dry then that. From a business perspective, I would think that dealerships would want to set a bare minimum profit on each car. But then again, Iím not in the car industry so Iím sure there are a lot of other factors that Iím not taking into considerationÖ like you mentioned
The car business is like any other business ... it is around to make money so I think your question is 100% right on target. I remember when I sold used cars almost 16 yrs ago I was told the amount the car costs the dealership and how much we wanted over that price.

It all comes down to money ... no offense to Adrian but the reply he gave you did not answer your question. It gave you a round about reply that basically said ... how much do you want to pay. When a car salesman asks me that particular question is when I usually walk out.

We all know a clean vehicle will sell for a higher price then a poorly taken care of vehicle and that factor is taken into account when the dealer purchases the car. in fact I've noticed lately that the cleanest car nowadays will get book to under book ...
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  #9  
Old 11-29-2004, 02:04 PM
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I'd say $500-1000 profit is fair
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  #10  
Old 11-29-2004, 02:49 PM
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Originally Posted by atyclb
I'd say $500-1000 profit is fair

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  #11  
Old 11-29-2004, 02:55 PM
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Originally Posted by atyclb
I'd say $500-1000 profit is fair
And it is clear to me that you are NOT at all familiar w/ the used car biz


Fact is, the used car biz is like any for profit biz. The more the merrier. The notion of X$ over cost as profit just doesn't exist. There are books written about the used car biz, its not something that can be explained in few minutes of typing in a discussion forum.

For one thing you must consider that a used car purchase by a dealer (be it trade-in or flat out purchase) involves with tremendous amounts of risks. These are CASH out of the dealer's pocket (working capital) and he has to take his best guess at which merchandise will move (and some will not move) He has to take a best guess at the car's popularity (Supply and Demand). and if he is wrong (i.e. paid too much for it) he will be stuck with a loss. Expand on this a lil' bit and you will see that used car biz is much different/riskier than new car sales.

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Last edited by beewang; 11-29-2004 at 03:06 PM.
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  #12  
Old 11-29-2004, 03:00 PM
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Quote:
Originally Posted by Andy

On an average, how much cost does a dealer have in CPOing a car? I know that the dealer has to inspect the vehicle and then replace any worn parts, but is it just labor involved? Does BMWNA help the dealer out in CPOing a car? What other costs do the dealers have that I may not be thinking of?
We get virtually NO help from BMWNA. Despite what some might believe, they don't want to pay for repairs on a car in our inventory unless they have to. Electrical, Mechanical and other more complex repairs are usually covered under warranty if needed, but anything that is considered "wear" or "maintenance" is not covered. Examples are any trim items, wearable suspension parts, etc. Also, unless an indicator is on at that time, BMW will not honor Full Maintenance repairs for us. That means that not only do we pay for oil services and brakes, but we are also paying for things like control arms in 3-series and cupholders in 5 and 7 series. On average, we are spending $800 or so on "newer" cars (2 years old or newer, under 20k miles), and about $1600 on "older" cars (~3 yrs old, 20k+ miles). Add to that the actual fee that we pay to BMW to enroll the car in the CPO program.

Quote:
The price on CPO cars, a lot of time, seems over inflated. Now granted, I understand that with a CPO car I have the assurance that worn parts have been replace and I have the 6 year / 100,000 mile warrantyÖ but adding $5,000 to a KBB Private Party value seems a little high, especially if thereís only a year left on the warranty.
Part of that increase is due to the added security of buying from a dealer and having a warranty. The other part is due to the fact that the car is fully serviced and will not likely require any servicing for a while after your purchase. You won't have to go out right after you buy it and do tires, brakes, and servicing.

Quote:
I donít want you to think that Iím complaining, Iím just trying to fully understand things from the dealerís perspective. Doing so will allow me to truly understand the real value of the car and be able to make an acceptable offer.

Thank you for your responses.
I wish I could say it was an easy process, but it is far from it. In our company, we have a very strict 60-day rule. That means we have 60 days to sell a used car in our inventory (starting from the day that we receive the title). As you can imagine, in those 60 days, the market for a given car can change dramatically. Also, we can spend alot of money reconditioning many cars. So, if you come in and buy a fresh car off the lot, you're likely going to pay top dollar. If you come in on a car that is 55+ days old, and is about to be wholesaled for a price several thousand below our carrying value, you're in a good position to make a killer deal, and buy the car very close to our cost. Even then, it is not that simple... we might give away a "new" car that has only been around a few days if it's the end of the month and we need to move some cars, or even if we are just having a slow day and want to make a few more deals.

I really wish I could narrow it down into a specific formula, but it is way to complex.
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  #13  
Old 11-29-2004, 03:30 PM
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Thanks for the detailed responses!!
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  #14  
Old 11-29-2004, 04:19 PM
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Originally Posted by AF-RX8
The car business is like any other business ... it is around to make money so I think your question is 100% right on target. I remember when I sold used cars almost 16 yrs ago I was told the amount the car costs the dealership and how much we wanted over that price.

It all comes down to money ... no offense to Adrian but the reply he gave you did not answer your question. It gave you a round about reply that basically said ... how much do you want to pay. When a car salesman asks me that particular question is when I usually walk out.

We all know a clean vehicle will sell for a higher price then a poorly taken care of vehicle and that factor is taken into account when the dealer purchases the car. in fact I've noticed lately that the cleanest car nowadays will get book to under book ...

No offense taken , but my reply basically said this: What's the car worth to both parties involved in respect to the market, the mileage and condition of the car and supply?

I understand every buyer wants a finite number. You know, $X over cost. But you know what? At the end of the day, when the smoke clears, you have to ask yourself is the pre-owned car you're interested in the best one available and if so, at agreeable terms. I've seen dealerships make a ton of money on a pre-owned car and also lose some serious money!

If this was a private party sale, $X over cost would be irrelevant, wouldn't it? So if you buy a pre-owned BMW for $25k and the person had clear title, would that person be entitled to making a $25k of what that car is worth? Or what if that person who's selling that car has a payoff of $30k, but the car's worth $25k.

Thus, in my opinion, it doesn't behoove the buyer to try to pay $X over cost for a pre-owned car if the dealer owns a car for $28k but the market value is $25k. Nor does it benefit the dealer to agree to $X over cost if they own it for $22k. Conversely, if the dealer sells the car for a market value of $25k and they own the car for $28k, it's okay to lose money, but when a dealer owns a car for $22k and sells it for $25k that's seen as not okay?
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Previous BMW's owned: 1987 325is, 2001 330xi, 2006 330Cic, 2008 535xi Wagon, 2009 328i, 2012 328i
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Last edited by adrian's bmw; 11-29-2004 at 04:24 PM.
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  #15  
Old 11-29-2004, 07:14 PM
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Quote:
Originally Posted by adrian's bmw
No offense taken , but my reply basically said this: What's the car worth to both parties involved in respect to the market, the mileage and condition of the car and supply?

I understand every buyer wants a finite number. You know, $X over cost. But you know what? At the end of the day, when the smoke clears, you have to ask yourself is the pre-owned car you're interested in the best one available and if so, at agreeable terms.
I agree with everything you are saying and I am a firm beleiver that if you are buying a used car and it is a beautifully kept low mileage vehicle, it is worth it to over pay for it.

With that said, I felt Andy was asking only one question and that was what a typical dealer finds to be the 'right' amount of money to make on a car. Andy sounds like he found the car he wants and doesn't want to low ball the dealer.

So while I do agree with your logic, I just found the advice you gave Andy didn't fit his question.
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  #16  
Old 11-29-2004, 07:24 PM
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Quote:
Originally Posted by Andy
What is a fair dealer profit on a $20,000 to $25,000 pre-owned 5 series? Is there a percentage or is it typically a flat amount?

Iím ready to make an offer on a car and I want to make sure I allow for a reasonable profit for the dealer.

Thanks,
Andy
Andy,

It all depends on days-in-inventory.

For a 90-day unit, the dealer may sometimes be willing to take a "digger";
in other words lose money on a deal. Retailing it for a loss is sometimes
better than the "back of book" beating a wholesaler is going to give them...


Pull your salesman aside and ask him how long the car has been around
(including time spent in recon).

Use this info for leverage.

Owners and used car managers love to blow 90-day units...

Good luck and best regards,
--Jon
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  #17  
Old 11-29-2004, 07:58 PM
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Quote:
Originally Posted by jon
Andy,

It all depends on days-in-inventory.

For a 90-day unit, the dealer may sometimes be willing to take a "digger";
in other words lose money on a deal. Retailing it for a loss is sometimes
better than the "back of book" beating a wholesaler is going to give them...


Pull your salesman aside and ask him how long the car has been around
(including time spent in recon).

Use this info for leverage.

Owners and used car managers love to blow 90-day units...

Good luck and best regards,
--Jon
Great tips, thanks Jon.

Based on my calculations, this car has been on their lot since June 16, 2004. That means this car has been on the lot for 5 months!! Good for me... I guess?

I'll let you know how it works out.

Thanks again for all the advise guys!!
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Old 11-29-2004, 11:06 PM
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Originally Posted by Desertnate
I had been told that pre-owed cars were more profitable, than new. This almost makes it sound more of a crap-shoot versus a fairly depedable profit margin on a new car. As a customer it is hard to know if the price you are trying to negotiate is screwing the dealer or not.

The customer can not screw the dealer, if your offer is to low, they simply won't sell you the car.

I agree the CPO'd cars sometimes seem too expensive. The dealer will spend money on bringing a car up to CPO standards, ie tires, brakes, etc. if needed. In some cases, I feel it would cost almost the same to purchase new, especially if you do an ED.
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Old 12-04-2004, 05:39 PM
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Quote:
Originally Posted by Andy
What is a fair dealer profit on a $20,000 to $25,000 pre-owned 5 series? Is there a percentage or is it typically a flat amount?

Iím ready to make an offer on a car and I want to make sure I allow for a reasonable profit for the dealer.

Thanks,
Andy
Everyone here makes some good points. I too, am in the market for a used Bimmer and have spent the last 3 weeks searching (I've gone through this a few times before and always hate doing this). Just from my observations, dealers don't always share the same view on "profit". I gave up along time ago trying to figure out what was best for them and just tell them what I am willing to pay instead. I have found things go much better when you walk in with a lot of information about the car. A few dealerships seem receptive to a fire and forget deal.
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