Wholesale value, or wholesale price, is how much a dealer pays to buy a vehicle at a used-car auction. This value helps establish a baseline for dealers that informs how much they’ll pay for trade-ins and how much they can charge a consumer for a car.
About 9 million vehicles are bought and sold at used-car auctions every year in the U.S., running the gamut from a 12-year-old beater a dealer took as a trade-in to a late-model car just coming off a lease or acquired from a rental-car fleet.
Companies such as Manheim (the largest auto-auction company) manage auction sites nationwide (physical and online) where thousands of used vehicles are sold weekly. Auction houses collect data on prices, along with what’s selling quickly and what isn’t, and that information is widely used by the auto industry to price used vehicles.
For example, if a 5-year-old SUV with 60,000 miles on it sells at auction for an average of $12,000, that is its wholesale value. That number will then be a benchmark for various used-car price guides and dealers as they determine prices for the vehicles they take as trade-ins and the used vehicles they sell.
So that vehicle with a wholesale price of $12,000 might have a retail price of $14,000 or $15,000 when sold by a dealer, slightly less if sold by an individual in a private sale.
Wholesale values rise and fall based on how the economy is faring, the time of year, and supply and demand. Specific to the vehicle itself, the value will depend on its age, how many miles are on the odometer, the vehicle’s overall condition, and what features it has.
While “wholesale value” and “trade-in value” (also called “book value” because these prices used to be published in periodic guidebooks) are often used interchangeably, they aren’t always the same.
Wholesale value is what a vehicle is worth at auction. In contrast, trade-in value is what a dealer is willing to pay for a used car — typically more flexible and usually less than the wholesale value.
For example, if a vehicle is traded in and has a wholesale value of $7,000, a dealer will probably offer a customer closer to $6,000 — maybe less. That’s because administrative costs are associated with taking a used vehicle in a trade, transportation costs to an auction, and other fees.
Dealers don’t take trade-ins as a public service; they do it to make money, whether they intend to sell it at auction or recondition it to sell on their lot. As with other jobs at dealerships, a used-car appraiser’s salary often depends on how much profit the dealership can generate from the trade-ins they take from individuals, giving them the incentive to buy low and sell high.
Trade-ins present risks to dealers. A car a dealer takes in trade may not sell quickly or for as much as they expected. There’s also the chance it has mechanical or structural damage they didn’t spot that may hurt the car’s value, as not all consumers are upfront about these issues when they trade in a car. As a result, dealers try to play it safe when determining how much they’ll pay.
Trade-in values also have more wiggle room than wholesale values – both up and down. If someone trading in a vehicle has new-car fever and isn’t worried about getting the best deal, a dealership might offer a low-ball trade-in value, hoping the buyer will be too excited to argue. Other buyers might grumble about a low trade-in value but don’t want to go through the hassle of selling the car themselves.
On the other hand, dealers might increase an estimated trade-in value closer to the car’s wholesale price to get a deal done. For instance, if a buyer’s trade-in represents all or most of the down payment on their new vehicle, a higher value might help them get approved for a loan, allowing the dealer to make more money in other areas of the deal.
Consumers don’t have access to the same detailed data on used-car values that dealers do, but that’s OK. Use the Carfax History-Based Value tool to find the value of a car you want to sell or trade in or to find the best estimate for a car you’re considering buying.
This tool uses a car’s age, mileage, and condition to help determine its worth. But beyond these common data points, it uses additional data from Carfax’s Vehicle History Reports that can affect how much value a car loses over time, including a vehicle‘s accident history, title history, service and maintenance records, and other factors.
The tool will give you detailed price estimates for a vehicle in three condition levels: Excellent, Good, and Fair. Those estimates will help you set a realistic price for a car you’re selling or negotiate for one you’re considering buying.
Remember, though, that these values are guidelines: If you’re trading in your car, don’t be shocked if a dealer offers you less than the published values you’ve seen. While there is some science to appraising a used vehicle, there’s also a lot of subjectivity; one dealer may need used cars like yours, and others may not. That might mean one dealership will offer hundreds of dollars more than another. And if you’re selling a vehicle to another individual, they’ll typically offer less than your asking price. Just keep all that in mind when you’re getting ready to make a deal and adjust your offer or asking price accordingly.
If you have questions about this story, please contact us at Editors@carfax.com
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