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Do Dealerships Make More on New or Used Cars?

So, you have decided that it is definitely the right time for you to get a car. Should you go into debt and purchase a new model or save a few bucks and get a used vehicle?

At Classic Chevrolet Cadillac, we're happy to be providing you with some valuable information, so that when the time comes to make a car buying decision in Beaumont, TX or anywhere else in the country, you'll be able to make a smart one.

In general, car dealerships make more money selling used cars than new ones. Why is this? Because there is a lot more variation among used cars than with new cars, thereby making it more difficult for buyers to comparison shop and easier for dealerships to hide the profits.

Depending on who you talk to, profit margins on most new vehicles are paper thin. Dealerships usually make more money selling more expensive vehicles, such as SUVs and luxury models, but high-volume models are deliberately priced to compete with other types of vehicles, as well as with competing dealerships.

The Internet has enabled car shoppers to make sense of industry terminology, such as "dealer invoice," which is what the dealership ends up paying the carmaker for the vehicle.

There are also a wide range of laws that regulate which information must be shown to the buyer. The mathematics that went into new vehicle pricing used to be fairly secretive, but now it's all out there in the open, and a well-educated shopper can now get a good sense of how much the dealer stands to profit from a sale and a solid position for further negotiating.

Used cars, however, are a completely different game, because they're not acquired or marketed on an even playing field. Depreciation varies year-to-year, and a car dealership is under no obligation to divulge how much it paid for the car. As such, used car guides, such as the Kelley Blue Book and the series of NADA Guides can provide guidelines for a reasonable trade-in, wholesale and retail pricing, but they're not to be taken as gospel. As long as the automobile looks like it's in good condition and that the price seems fair compared to similar vehicles currently on the market, the customer is normally none the wiser. Dealerships tend to get these used cars cheaply, too, by picking them up at auction or through a lowball trade-in offer to customers that are eager to get into new cars.

So, be careful whenever you purchase a vehicle from a dealership, whether it's new or used. Do your research and due diligence and you be rewarded with a good deal!

Sources: Consumer Reports, AARP and Popular Mechanics

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