Most of the goods we purchase as consumers go through several hands before they’re made available to us at the retail level. Typically, a factory might make a product and then sell it to a retailer or a distributor for what’s known as the wholesale price. Once the retailer acquires that product, they add their profit and overhead costs to the wholesale price to come up with a retail price. That’s what all of us pay when we shop at a store.
This pricing model applies to the automotive world as well. If you’re in the market for a new vehicle, you can expect to pay the retail price, sometimes known as the MSRP (manufacturer’s suggested retail price). If you’re shopping for a used vehicle, you will also pay the retail price, although it no longer comes with an MSRP. Instead, it’s offered by the dealer at a retail price the dealer thinks they can get based on the condition of the vehicle and the demand for the specific model.
On the other hand, if you’re thinking of trading in your current vehicle and you’ve noticed how much sellers are asking for vehicles that are like yours (same make, model, condition, and mileage), you might be surprised when the dealer offers you less for your trade-in. That’s because when you trade in a vehicle, you’re agreeing to sell it to the dealer for the wholesale price, and not the retail price.
When the dealership purchases your vehicle at a wholesale price, they will need to sell it to another consumer at the retail price. The gap between what they pay you (wholesale price) and what they charge the next customer (retail price) allows the dealer to make a profit (minus what it will cost them to repair and recondition your vehicle for sale). They also must account for overhead, since they’re running a business.
While you may pocket more profit by selling your car privately, it requires time, patience, and negotiating skills, which is why sometimes it’s much easier to just trade a vehicle in and avoid all the stress and headaches.