If you’ve been thinking about purchasing a new vehicle and know that a used one is the best option based on your current financial situation, you’ve likely been thinking about heading to a used car dealership. But, do you know where these dealerships get their inventory? Understanding the sources of used vehicles can help you navigate the pre-owned car market more effectively.
Key Points
- Car dealerships get their used vehicle inventory from a variety of sources, including auctions, customer trade-ins, off-lease vehicles, and rental car companies, among others.
- Buying a used car instead of a private seller comes with several benefits, such as warranties, vehicle history reports, inspections, and test drives.
- Whether buying a used car from a dealership or a private seller, it’s always a good idea to do your due diligence on the vehicle before committing to a purchase.
- If you plan to finance your used car, use a comparison platform like Loans Canada to find the best deal on car financing.
How Used Car Dealerships Acquire Their Vehicles
Car dealerships get their used car inventory from a variety of sources.
Car Auctions
One way that used car dealers buy and sell their inventory is through auctions, which are held across the country and can yield the widest range of vehicles that are available to the general public.
- Closed Auctions: The first event is called a closed auction and is only open to franchised dealerships that are working with specific manufacturers. The vehicles sold here are called “program cars” and are often the result of lease returns, repossessions, and other related incidents. Fortunately, while program cars are older models, they’re generally in much better shape than most privately owned vehicles due to their lease agreements.
- Open Auctions: An open auction, on the other hand, is where smaller dealerships can go to find vehicles that are in worse condition overall or that didn’t sell at a closed auction for some other reason. Here, almost any car, van, truck, or SUV can sell, no matter how much mileage it has or what year it was made.
All this said, auctions aren’t always a dealership’s first choice because a lot of time, money, and effort has to go into the auctioning process, despite it being somewhat easier to buy, sell, and move large volumes of cars.
Customer Trade-Ins
One of the advantages of purchasing your second-hand car through a dealership is that you can potentially trade in your current vehicle in exchange for a reduced price on the one you’re about to buy. If the vehicle is in good enough shape, you may even receive better conditions when you apply for in-house financing.
If all goes well, they’ll be able to fix up your old car for minimal costs and resell it within a reasonable time frame. They may also buy up less valuable vehicles for cheap and send them to auction with hopes of seeing a profit.
This may be a preferred alternative because the dealership can skip the auctioning fees. Instead, they’ll have to compensate for the amount of time and money it takes to purchase, repair, and sell each individual vehicle.
Learn more: Can You Trade In A Vehicle That Is Not Paid Off?
Buying And Trading With Other Car Dealers
Since auctions and customer trade-ins can be inconvenient and expensive, many second-hand dealerships would rather do business with the other car lots in their neighbourhood. This strategy is simple, to the point, and helps build connections.
In this situation, dealerships would be taking the same risk that they would when trading with prospective clients. The cars they buy are often older, well-driven models that are waiting to be fixed up and sold at a higher price.
Off-Lease Vehicles
Leasing is a popular option for car buyers, as monthly payments are typically lower compared to financing, and a new car is available every two or three years. At the end of a lease term, the vehicle is returned to the leasing company or dealership. These vehicles can then be resold to the public, often through a car dealership.
This is a great option for dealerships because the cars are typically in good shape and have low mileage given the lease restrictions. There’s also a steady supply of these vehicles, as leases expire on a regular basis.
Rental Car Companies
Rental companies, like Budget or Hertz, have a frequent turnover of vehicles to ensure their fleet is always relatively new for their customers. As such, they regularly sell off older models. Many car dealerships purchase these vehicles to add to their inventory.
These cars are typically in good condition, as rental companies tend to follow strict maintenance schedules. The cars are also relatively new and often come with modern features. However, a potential downside is that rental cars may come with high mileage because of how frequently they’re used.
Learn more: Buying A Used Rental Car
Repossessions
Banks repossess vehicles when the owner defaults on their car loan. These cars are then sold off so the bank can recoup their losses. Banks may sell at auctions or directly to car dealerships.
Buying a repossessed vehicle can result in significant savings as these vehicles are typically sold at discounted prices. Banks are also looking to get these vehicles off their hands quickly, so they may be more willing to sell at a lower price. However, some repossessed cars are in bad condition, and there’s always a risk of buying a ‘lemon’ since auctioned vehicles are sold as-is without the opportunity for them to be taken for a test drive before purchase.
Business And Government Vehicles
Businesses and government offices typically have their own fleet of vehicles that are used by employees. Once these agencies no longer have use for their fleet, they may choose to sell them at auctions or directly to car dealerships.
These vehicles are usually well-maintained with detailed vehicle history logs, so they’re typically in good condition. Plus, car dealerships who buy in bulk may be able to snag discounts. That said, vehicles used in business and government agency settings often have high mileage.
Benefits Of Buying Your Vehicle At A Used Car Dealership
There are several reasons why you may want to buy your used car at a dealership as opposed to a private seller:
- Vehicle Inspections – Dealerships inspect their fleet to ensure all vehicles are safe and up-to-par, whereas private sellers might not always disclose any problems with a car.
- Warranties And Guarantees – Dealerships often provide warranties or certifications on used cars, giving car buyers peace of mind that they’re buying a car in good condition.
- Vehicle History Reports – Dealerships typically provide detailed vehicle history reports, giving buyers all the information they need to look into the vehicle’s past accidents and maintenance records.
- Paperwork And Registration – Dealerships handle all the paperwork on behalf of car buyers, such as registration and title transfers.
- Test Drive – Dealerships typically allow car buyers to take vehicles out for a test drive to see how the car performs before committing to a purchase.
- Financing Options – Dealerships often offer in-house financing options, making it easier for buyers to purchase a car without having to come up with the full price upfront.
- Trade-In Opportunities – Dealerships typically allow car buyers to trade in their current vehicles to put towards the purchase price of another car.
- Legal Protection – Dealerships are required to comply with local consumer protection laws.
Final Thoughts
Used car dealerships use a variety of sources to stock their inventory. From car auctions to trade-ins to off-lease vehicles, each resource offers a unique opportunity for dealerships to get their hands on vehicles they can sell at a profit while still providing customers with good deals. As a car buyer, understanding the history of a used car can help you know what kind of vehicle you’re buying.
