How to Interpret the Big Gap in Retail-to-Wholesale Prices

Guest author Jasen Rice shares advice on used vehicle pricing and how to use data to close gaps. Rice is the owner of automotive consulting agency Lotpop.

By: Jasen Rice

We are starting to see a huge gap between dealerships’ retail prices, especially on aged cars, and the Manheim Market Report (MMR) wholesale values.

In the chart below, you can see a list of vehicles over 60 days old on one dealer’s lot. You can see their average price to market is at 92%, yet the spread between their asking price and wholesale is $3,318. It gets even bigger when you look at their vehicles priced at or below 90% price to market. In that case, the average spread is $3,385. Going even deeper, you can see the 2015 Chevrolet Silverado’s $4,400 spread priced at 89% to market, and the 2018 Mitsubishi Outlander LE’s $4,700 spread priced at 90% to market.

Even though you think you are aggressively priced to the retail market, the wholesale tells a different story. This current situation puts dealers in a hard position because they don’t need to – yet – reduce their pricing more, as the retail market pricing seems to be holding. But, if dealers in the market start buying more wholesale and price it aggressively, then the dealer in this chart could be in a world of hurt based on the loss they would be taking on these aged cars.

So, should you go ahead and reduce the retail price to drive more retail sales and minimize the loss, or hold out and hope that the retail market holds? I have always said the “Obama, hope and change” strategy does not work for used cars. Your best bet is to always move cars as fast as possible to maximize your gross. But opting to “roll the dice” in hopes that your vehicle’s higher pricing attracts an uneducated buyer or that the market changes and your car suddenly becomes more valuable is not going to make your dealership as profitable as it could be.

This current situation is tricky. No one knows the right answer. But, I can tell you that if you are not seeing the traffic that you need or want right now, then make your cars more attractive. Then, go buy the replacement at a way lower price than you owned the last one for, and make up your profit there before the rest of the market starts playing catch up.