Wholesaling Used Cars: The Ultimate Dealership Guide

July 10, 2019




Wholesaling Used Cars: The Ultimate Dealership Guide

ACV facts & figures

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Wholesale used cars on a dealership lot

It happens at some point to every dealer, even the best. Despite analyzing the market data, using the latest technology and incentivizing salespeople to move aged inventory, you just can’t move a unit. Or maybe you accepted a trade-in that doesn’t meet your inventory mix. Or you took a high-mileage trade-in in order to make a retail deal.

That’s when you start considering your options for wholesaling used cars. Read this article to learn more about why cars are sold at auction.

Why is wholesale a better way to sell used cars?

Wholesalers buy vehicles at auction or from dealers that are having trouble retailing. They then turn around and sell the vehicle for a significant profit.

Wholesaling trade-ins is often seen as a necessary evil for managing inventory by moving aged units so they aren’t tying up funds. How cars are sold wholesale is nothing like retail sales. The goal is to get the unit off your lot as quickly as possible and minimize the loss. That used to mean calling up wholesalers to see what they’d offer or taking vehicles to a physical auction. Often, those limited options were neither efficient nor cost effective. Additionally, you might have to offer a bundle of inventory to get rid of unwanted vehicles, leading to lengthy, time-consuming negotiations.

Fortunately for today’s dealerships, online channels are making it much easier to wholesale used vehicles and turn a bigger profit.

What is a used car’s wholesale value and how is it determined?

A car’s wholesale price or value can mean several things, but in this context it means the price a dealer would pay to purchase a vehicle from the manufacturer or an auction. This is a measurement that translates into a dealer’s cost—the pre-sale total investment in a particular car. The difference between the seller's asking price and the seller’s cost is the profit margin. In some instances this profit margin can be higher than what it would be for a new car.

Factors that determine a car’s wholesale value include:

  • Vehicle condition - Whether the car is in mint, good, or poor condition.
  • Vehicle age - The model year.
  • Current estimated vehicle value - Determined by Kelley Blue Book, Edmunds and other value databases.

The evolution of wholesale car dealers and the rise of smartphone apps

Wholesaler auto dealers and how they work have always been a bit of a mystery, even for auto industry insiders. They take the inventory that a dealership can’t sell and somehow get another dealership to buy it. People are always asking, how do wholesalers make money?

Successful wholesalers can sell wholesale used cars largely because of their knack for valuing used vehicles. They’ve also built up a network of dealers over the course of years. When a wholesale vehicle comes along they know what it’s worth in the right market on the lot of the right dealer. Low overhead is another factor that has helped traditional wholesalers remain profitable. In some states, wholesalers don’t need a physical storefront or insurance. They just need a wholesale license and enough capital to buy their first vehicle.

Many dealers don’t trust wholesalers after having less than positive experiences with them. In addition to time-consuming negotiations, dealership owners can end up with checks that bounce when the wholesaler can’t honor the payment. Now the industry is evolving, and it’s evolving in a way that doesn't support the traditional wholesaler in the way it used to.

Access to information has put a lot more power in the hands of dealers. There’s now an abundance of pricing and car sales data online that’s up-to-date and being added to every day. More transparency has helped used car managers even the pricing playing field with wholesalers.

The rise of online auctions has also changed wholesaling. Once traditional wholesalers were considered more cost effective than auto auctions. Wholesaling at a physical auction involved transporting the vehicle and going to the car auction where dealers would compete with a number of similar bargain buyers to get the attention of a limited number of buyers.

Online auctions have completely reinvented the process, much to the advantage of dealerships. Vehicles don’t have to show up at an auction location and the pool of buyers is much, much larger online. This new wholesale option has diminished the advantage of selling aged inventory to a traditional wholesaler.

The latest change in the industry has been the introduction of apps that bring a customer-facing strategy to the business-facing side of wholesaling cars.

How do wholesale used car dealers make money?

There are a wide variety of ways that automotive wholesalers make money, but there are three methods that are the most common.

Auction to auction

This is when the wholesale dealer buys used vehicles at auctions and attempts to resell them at a profit at other auctions. With swings in value of particular models and the ability to perform an automotive restoration or detailing, it’s a fairly simple process to relist and resell from auction to auction.

Auction to dealer

This is when the wholesale dealer buys used vehicles at auctions and resells them at a profit to used car dealerships. Similar to auction to auction, swings in demand and value and fixing up auction finds is a solid business model.

Dealer to dealer

This method involves buying used cars from dealerships and reselling them to other dealerships at a profit. Dealer to dealer work can often be conducted over the phone and involves porters moving cars. 

Each method allows wholesale dealers to make money and when done at scale, can result in substantial weekly earnings. Note that these are just a few examples.

What is the best way to find wholesale cars?

The traditional auto wholesaling process is largely based on relationships between dealerships and professional used car wholesalers. It’s all about finding people you can trust to represent a vehicle accurately, offer a fair price and hold up their end of the deal. You have to make calls and put out multiple feelers to find the right person to move the automobile. People on both sides can get burned quite often.

Selling cars wholesale used to be time-consuming, tedious and riskier for dealers that hadn’t made strategic partnerships.

Some pros that have been in the business for years know how to make money wholesaling cars the traditional way. However, many dealerships today prefer new digital strategies for handling wholesale cars.

The process of using an auction app for wholesaling used cars

Selling cars wholesale is dramatically different today than it was just a decade ago. Wholesale insiders noted that the Internet was a game changer 20 years ago. The next major wave of innovation has come in the form of apps that can be used anywhere on smartphones and tablets.

The experience of an app-based solution was introduced by large, tech-based operations like Carvana, and the idea caught on quickly. Dealers are just like any other modern consumer. If there’s a quick and easy way to make a purchase with a smartphone they’re going to exercise that option.

With an app like the one we’ve created for ACV Auctions, the networking is already done. Dealers have instant access to thousands of wholesalers, independents and other dealers. The app developer is an intermediary that helps facilitate the relationship and provide assurances that others are acting honestly.

There’s also more assurance that you’ll minimize the loss or turn a profit compared to traditional wholesale auctions and dealing with a wholesaler one-on-one. First, the app’s customer representatives come to the dealership to craft a thorough auction listing. The hundreds of inventory data points allow others to buy inventory with confidence, which translates to better offers for your inventory. Second, after the live online auction, the dealer can choose to accept the highest bid or make a counter offer, helping them get the price they think is fair.

The other distinct advantage of our app and others is reduced cost. In the past, selling wholesale cars at physical auctions came with steep fees that made the venture far less profitable for buyers and sellers. App-based online auctions aren’t nearly as costly to run and the savings are passed on to the sellers in the form of much lower fees.

Offering time and money-saving tools like an app has helped ACV Auctions maintain its standing as the leading dealer-to-dealer online wholesale marketplace. Because when it comes to wholesaling used cars, it’s a $15 billion industry that’s built on saving dealers dollars and days.

How to Buy Cars Wholesale and Sell Retail

Dealers aren’t just using auction apps to offload aged inventory. They’re also using them to find wholesale vehicles that are right for their market.

Knowing how to buy wholesale cars without having to wait for a local wholesaler to find what you need gives dealers more control over their used inventory. It doesn’t necessarily replace traditional wholesalers who seem to always find a way to carve out a piece of the action. Instead, auction apps give used car managers easy access to see what thousands of wholesalers have to offer, making it easier to find what they need to fill inventory gaps. This evens the playing fields and makes for a fairer marketplace.

With ACV as the intermediary, the process of purchasing wholesale vehicles online is much more reassuring. Dealers and wholesalers that are purchasing dozens or even hundreds of vehicles a month need to be confident in what they’re buying without seeing it in person. Beyond being a trusted online auctioneer, our thorough condition reports and pictures created by a team of experienced auto inspectors establishes a buyer’s confidence that’s almost as good as seeing the car in-person.

Dealer app experiences fuel new wholesale car auction opportunities 

Change is either challenged or adopted, and app wholesaling solutions are largely being adopted by the industry. For car dealerships, time is most certainly money, and the ACV app saves both.

Dealers have noted that the app:

  • Streamlines the wholesale car auction process from start to finish so that it’s UBER easy.
  • Allows dealers to spend more time at the lot while still acquiring and selling more wholesale vehicles.
  • Makes wholesale buying and selling more transparent.
  • Eliminates missed opportunities by sending notifications when a new auction is about to start.
  • Lower fees help facilitate more business.
  • Is married with customer service from a live dealer rep.
  • Means no more “day at the sale”.
  • Makes buying out of state less risky thanks to the condition report and detailed description.
  • Has a huge selection of inventory, making it easy to find good car value.
  • Comes with arbitration and resolution support.

ACV is revolutionizing the auto wholesaling industry one online auction at a time. It’s a streamlined auction platform that was built to help dealers buy and sell wholesale vehicles from any device, anywhere, at any time.

Sign up for a free account to find out why thousands of dealers use ACV Auctions as their go-to wholesale source!

Learn more about the benefits of online auctions for wholesaling.