Question regarding the auto business industry

Hello, I'm hoping someone here can help me with a question I have. Maybe someone who has worked at a dealership/used car shop would know this - what do dealerships do with cars that don't sell after a period of time? Do they get sent to auctions? If so, what % of the car's value do they sell it for? Is it possible they lose money?

Thanks!

They usually send them to auctions or wholesale them.

Its different in every state and with each brand. Basically if a unit of new stock chevrolet sits around in PA for one year, it becomes statistically more of a liability. The sales insurance companies often don't cover the vehicle past one year, and PA starts charging a vehicle tax on it. It gets advertised as a left-over and usually sells at or just below invoice.

Used cars in PA are slightly different. Since they are "live" commodity already titled, they are taxed starting right away. If the car sells within one month, the tax is refundable. One to three months it is a very cheap tax, but after three months it gets more expensive. If I wanted to buy a car from our used inventory, the general rule was $200 over invoice for a car we'd had for less than a month, $100 over invoice for a car 1-3 months, and anything after 3 months, at invoice. Used inventory usually comes by so cheaply that it rarely sits too long, but sometimes we minimized our losses by either selling it cheaply, or wholesaling it away at auction. That was a rare occasion, since the whole appraisal is usually accurate enough to weed out the losers. Many times we'd get a trade in and it would go straight on the trailer for the auction.

Its always possible that they'll lose money, but over all, the net proceeds from the sale of the new car and the used trade usually make enough money to be more than sufficient. There are also dealer holdbacks which can be anywhere from $1000-$6000 per unit sold depending on the car. When you see those sales where they're selling cars below invoice price it seems like they're losing money. No worries for the dealer, they get money from the manufacturer for selling the car. Its a game that is played so that the dealer can claim an invoice price higher than what they actually value the car.

I've never knew our dealership to lose money on anything. I've seen cars go out the door at invoice, but either dealer holdbacks or a pending sale on their trade makes big bucks in the end. Add on to that dealer holdbacks on new cars and I've seen gross profits on a typical deal top $6500 easy... and that's not on anything special. I'm talking like someone with a trade of a Ford Escort buying a new Buick LeSabre. We might make $2000 over invoice, plus a dealer holdback of $2000 (that's a guess), and since we gave them $500 for their trade but sold it to an unsuspecting college student for $3000, there's another $2500. You have to consider, too that the escort spent at least a day getting buffed, cleaned, polished, and maintenance done. We may have had to put new tires or shocks on it, but for a total investment of about $1200, we sold it for a significant profit.

I traded a Beretta GT once on a 96 Impala SS. They gave me $4500 for the GT and I paid invoice for the SS. They turned around and sold the GT for $6800, so they made a really easy net profit of about $2000 after cleaning it up.

The real trick is to find a new-car dealer that is not going to keep a trade... if its headed to the wholesaler right away, they can sometimes be snagged really cheap. New car dealers will wholesale stuff off that is really nice because it doesn't have universal appeal. A couple years ago I bought an 87 Cutlass Salon with the 442 package. It had 36,000 on it original and was pristine. It was at a Kia dealer and they had no interest in it. I offered them a wholesale price for it (less than half of what it was worth) and they saw an opportunity. They made instant money instead of paying a transport and a representative to take it to the auction. I got a cherry piece of American History :)

Thank you for responding!