I've been looking at 3/4 ton trucks. I don't put on lots of miles. So I've been looking for something 3-5 years old with 80,000-120,000 miles. To me they seem very expensive, they are up into the mid to upper twenties. What is the deal? You can buy a new one in the mid thirties. Where is the sweet spot for buying a used truck?
Once upon a time I was a salesman at a GM dealership, so I might have a little more insight than most on how new car and truck sales work.
One very important thing to keep in mind when it comes to new car and truck sales is the financing aspect. Most people (almost no one) don't pay cash for vehicles anymore. For that matter, most people don't actually know how much they paid for their new car or truck - they only know how much their monthly payment is.
Another important thing to understand is how the dealer incentives work. Many dealerships who sell new vehicles actually lose money (or only make a very small amount) on the actual new car and truck sales. They do this for a couple of reasons, mainly because the manufacturers force them to take a certain number of certain vehicles to allow them to continue to be a GM (or whoever) dealership, and most dealerships are paying interest on every vehicle they have on the lot from the moment they take delivery on it. So they get stuck with a $50,000 truck they may not want, but don't have a choice in the matter. And because anyone on the internet can take the VIN of that vehicle and find out the "invoice pricing" (and that's if the dealership doesn't just hand you their invoice on it) there really isn't a lot of room to negotiate on those prices anyway. And even if a dealership wanted to fight for "sticker price" the buyer would just go to the next town with the same dealership and buy it there.
So there is no margin, and not a lot of motivation for dealers to try to get ‘top dollar’ for new vehicles, and a lot of incentive for them to get rid of them as quickly as possible.
In addition to that, many manufacturers further motivate dealers by offering them ‘coupons’ or ‘dealer rebates’ on certain vehicles or types of vehicles (luxury models that aren’t selling, or anything the manufacturers just have too much inventory of.) Many dealerships will actually use those for customers, in part or in full, just to get rid of a new vehicle that’s costing them money to have on the lot every month. Chevy’s “famous” ‘Truck Month’ comes to mind, which is essentially Chevy trying to clear the lots of last year’s models as quickly as possible, before they start rolling out the coming year’s trucks, which tanks the value of the previous year’s. I saw new trucks going out the door at about 65% of sticker price at times. Granted, it was a rough time for the business and GM.
So why do dealerships put up with this?
Being an official Chevy dealership means a lot more service business, and generally a lot more parts sales business. Volume bonuses are also a big deal, so there really is some truth to buying a new car at the end of a month.
There is also some money to be made on the financing side, as well as the add-ins (Z-Bart coating, wheel packages, alarms, whatever) but no one’s getting rich on this.
One thing to note: you generally can’t combine incentives as a buyer, meaning if you take the 0% financing option, you’re paying full-price for the car or truck. Still might be a better deal if you take 0% over 5 or 6 years and plan to keep it that long, which is what a lot of people do….and then they wind up trading it in in 3-4 years, taking a huge hit in value where the dealership can make some money.
Additionally, being the official Chevy dealer means being able to sell “Certified Used” vehicles, which are a big money maker. Used cars and trucks in general are where new car dealerships make their money. And being an official Chevy dealer means you get first crack at the lease auctions, and anything being sold off by GM Financial (because every major car manufacturer has a finance division.) So you’re getting the best used vehicles for your lot. You also get more and better quality trade-ins, which are always better than anything you have to go out and buy at auction.
On an average new vehicle sale the dealership probably loses money at the end of the day. On an average used car or truck sale, the goal is typically to make at least $2,000-$3,000 on something in the $15,000-$25,000 range. As much as $3,000-$4,000 isn’t uncommon, and I personally sold vehicles more than once where the dealership made over $5,000 on the sale.
On the financing side a lot of the manufacturers are actually using their financing companies to shift financial losses. I.e. Chevy decides to boost sales by allowing people with bad credit to buy new cars via GM Financial. They do this knowing that a good portion of those people will default on the loans, and they’ll take the cars back. This isn’t malicious, it’s just stupid, or short-sighted. But at the end of the day, GM “makes” money on sales and GM Financial loses it – just over the course of years instead of a quarter. This is a lot easier for shareholders and corporate types to take, especially considering those losses can be offset by future ‘good’ sales and business practices.
For the record, business practices like this were a big part of why GM had to get “bailed out” by the government. Pretty similar to what happened in housing actually – they knew all along what they were doing was stupid, but the government told them to do it anyway and they’d cover them when the crash came.
As to why Used Trucks cost so much: supply and demand. And there is a ton of demand for used trucks, because the new ones are seen as so expensive (right or wrong.) There is also a ton of markup in used trucks, because by and large, dealerships have a hard time keeping them on the lot. Especially when the body style of the used truck is the same as the body style of the current year’s. If you think the people who buy Mercedes and BMW to be ‘flashy’ or ‘trendy’ are bad, you haven’t seen most of the people buying new trucks. They’re more a status symbol or fashion accessory than anything (but don’t tell the ‘Truck Guys’ that.) My old Sunfire (sub-compact chick coupe) did more hauling and towing than just about any daily-driver truck I’ve ever seen. My current work ‘truck’ is an old honda minivan I paid $1700 for 2 years ago and haven’t put a dime into. It can hold 4’ x 8’ sheets in the back with the tailgate closed, and it keeps them dry in the rain. I can’t remember the last time I saw a truck with a bed big enough to do that. And I didn’t have to buy an expensive truck box or cap to keep people from stealing my tools out of it.
If you can do some math, and if you actually plan on keeping the truck for a while, buying brand new with 0% financing is often the best way to go, and it eliminates “buying someone else’s problems” as we used to say. My brother just went through this exercise after shopping for years for a replacement for his full-size with 300,000 miles on the clock – he finally gave up on finding a good deal on used, and just bought new. It might wind up costing him $1000 more, but he got a brand new truck with a better warranty, rather than a 3-4 year old one with 40k-50k on it. It seems wasteful, but it can really be the way to go.