Dealer vs. Private Seller: What's the Smarter Way to Buy Your Next Car?
Buying from a dealer may cost more, but a private seller isn’t always the bargain it seems. Here’s what you need to know.
These days, I spend anywhere from 50 to 60 hours a week at the car dealership where I work. At prior stops along the way, I sometimes put in upwards of 90 hours a week. Sounds like fun, doesn’t it? Well, no, it’s not. It’s exhausting.
0:00 / 0:00
Needless to say, the last thing I want to do when I get home is look at videos about car sales. But lately my schedule has eased up a bit, so I started watching a few online videos. I was flabbergasted by the amount of terrible advice, most of it coming from individuals with dubious backgrounds and credentials but who are all over YouTube presenting themselves as experts. Now, don’t get me wrong. There are a few folks giving sound advice, and I intend to deal with that subject in future articles. But right now, I want to talk about one video in particular, made by the owner of a small used car lot. I’ll call him Used Car Guy. In his opinion, you should never buy a used car from a dealership.
Why? First of all, as Used Car Guy points out, most dealerships don’t own their inventory outright. They don’t have the capital to go out and buy hundreds of cars, so they finance them, which means they’re paying interest every day. If you have 200 cars in inventory, for example, that can add up rather quickly. That’s the real reason dealerships put so much pressure on people to buy cars—so they can get them off their lot as fast as they can.
Second, when you buy a used car from a dealership, there’s a good chance it got the car from auction, and auction prices are lower than retail. Used Car Guy says a small dealer like him may buy a car from auction for $3,500, then add say $2,000 to the price so he can make a profit.
Third, at a dealership you have to pay fees. Most dealerships charge what are called doc fees, and these can range anywhere from $50 to $3,000. Some dealers may have additional fees, like a delivery fee or a reconditioning fee, all of which adds to the bottom-line price. Some of these can be negotiated, some cannot.
Lastly, you don’t know what you’re getting when you buy from a dealer. You can never know the full history of a car that was bought at auction—how well it was maintained, how often the oil was changed, if it was ever repossessed. The car may look great, but there could be major mechanical problems lurking beneath the hood. Here I have to disagree. Carfax isn’t perfect, but it’s very, very good. There’s very little of a car’s history that Carfax misses—even if the owner doesn’t do all their servicing at a dealership.
So, what is Used Car Guy’s solution? If you can’t buy from a dealer, who can you buy from? His answer is simple. Cut out the intermediary and buy directly from an auction, or from an individual. Let’s examine this.
Buying From Auction
Used Car Guy says if you buy from an auction, you’ll be getting the car at a much lower price than you would from a dealer. This can be true... if you buy right. I know professionals, people who do nothing but buy cars for dealers, and even the most experienced among them sometimes get burned. They may misjudge the market and pay too much for a car, or they may miss a serious mechanical defect that makes the car unsellable.
We have very good buyers at the dealership where I work. But from time to time, they screw up and purchase a POS, which we then have to send back to auction at a loss. If even the pros make mistakes, why should you gamble that you, the total novice, will save a bundle buying a car at auction? It can be done, and if you’re adventurous, go for it. But don’t bet on it.
Buying From an Individual
The appeal of buying from an individual lies in the belief that an individual will be more honest with you than a “stealership.” That’s a very big assumption. And, unfortunately, it’s not always true. If you’ve ever seen the episode of The Andy Griffith Show where Barney buys his first car, you know even innocent-looking old ladies can rip you off.
While it’s true that individuals don’t have the pressure of paying interest on a lot full of vehicles, they all have a reason for wanting to get a car out of their driveway. If you ask them what it is, will they be honest and tell you it’s because they just found out it needs a new transmission? Probably not.
Used Car Guy’s answer to this is, find a good mechanic you can trust and take the car in for inspection. There are several problems with that. First, finding a good mechanic isn’t easy. Second, a mechanic isn’t always unbiased. Like a car dealership, mechanics are in business for themselves. If they’re used to working on Japanese cars and you bring in an American or German car, they’re likely going to advise you to buy a Japanese car. What a surprise. Third, you’re probably going to have to pay for the inspection. Fourth—and this is the biggest problem with every alternative Used Car Guy proposes—taking a car to a mechanic takes time. The mechanic’s time, your time, the seller’s time. The old saying “time is money” applies here.
The Advantages of Buying from a Dealer
There’s nothing wrong with buying a car from an individual. In certain circumstances it can be your best choice. But buying a car from a reputable dealer has several advantages.
Most dealerships already have mechanics working for them. Many also have reconditioning centers dedicated to taking used cars, looking them over to find any problems, and fixing them. These reconditioning centers act as a layer of protection for you, the buyer. They catch the vehicles with major issues and reject them before they ever hit the lot. Some dealerships even put a 30-day drivetrain warranty on their used vehicles (get it in writing!).
Then there’s the selection and convenience factors. Even in small towns or rural areas, there are usually a few dealerships within a short distance. That means you have a good selection of vehicles to choose from, and you won’t have to travel very far. If you live in a small town, you may have to drive a hundred miles to get to the nearest auction.
Finally, there’s the accountability factor. When an individual sells you a bad car, what can you do? You can try to get your money back, but chances are they’ll refuse. There’s no legal authority I know of that regulates sales between private parties. (You could take them to small claims court perhaps, but who has time for that?) If you buy a car off Facebook or Craigslist, there’s no third party you can go to for help. With a dealership, there is. It’s called the Federal Trade Commission.
But it’s unlikely you’ll have to resort to that. If a dealership has been in the community for a long time, it has a reputation to uphold. The last thing it wants is someone sitting in the showroom, sobbing their eyes out or ranting and raving because you sold them a lemon. It’s in their interest to work with you, either by refunding your money or getting you into a better vehicle. An individual—if you can even find them after the sale—won’t care.
The bottom line is, yes, you may pay a little more buying from a dealer, but in return you get a better selection, a vehicle that’s already been inspected and may be covered by warranty, and financing options if you need them. There’s also the convenience factor, which can save you a great deal of time and trouble, and you have an established business to hold accountable if something goes wrong. To me, that all adds up to greater peace of mind, which you can’t put a price on.