To set the scene we have go to the beginning. A Dealer has to pay for a sold vehicle once it is delivered. Until it is delivered the dealer holds the vehicle as a Bailee only. Bailee is a financial term used to describe some one who has possession of goods and controls these goods with out having actual owner ship. Once the goods, in this case the motor vehicle is delivered to a customer it must be paid for in full to the financier. The financier paid the manufacturer when the vehicle passed out through the factory gate.

Whilst Dealers try to delay payment as long as possible, Financiers conduct continuous stock checks, identifying vehicles no longer on dealer premises and thus due for pay out. Whilst the vehicle has not been paid for, the dealer incurs, at the prevailing commercial wholesale rate, interest charges on the outstanding debt. Even at a whole sale rate the amount of interest owing to the financier quickly mounds.

If the Dealer is not being paid in full by way of “cash”, i.e. a vehicle has been traded, than obviously the Dealer has taken the trade-in vehicle as part payment. The Dealer must be able to liquidate (sell) the vehicle immediately should the funds be required to pay the Financier for the vehicle just delivered to the customer.

If a dealer cannot resell the traded vehicle himself and that is often the case, for example a Ford dealer, operating in an affluent part of the city may not be able to sell old cars with high odometer readings at retail, nor would a Mazda dealer find it easy to retail a near new Toyota Landcruiser. The dealer, in order to liquidate the vehicle quickly will have to sell it to some one who is willing and able to pay for it immediately. Usually, no day goes by where no additional traded vehicles arrive. These traded vehicles must be disposed of immediately. Trade-In vehicles have to be moved on, not only because of the financial implications, often there are also space limitation. The people who buy those vehicles and on-sell them to retail outlets are called wholesalers.

Wholesalers are professional Buyers of motor vehicles. It is in their interest to buy the vehicle as cheap as possible. There are many wholesalers that compete for the available business. Small retail outlets may also compete to get their share of the trade-ins. Auction houses also have buyers calling on dealers to buy trade-ins. All these buyers need to buy vehicles, in order to sell vehicles and earn a living. Market forces are therefore in play ensuring that the right price is being paid for the trade-in vehicle.

Even if a dealer thinks that a traded vehicle can be sold at retail from where it has been traded, the dealer would not want have the vehicle owe more than what a similar vehicle was worth on the open market. The used vehicle department of a dealership is always operated as a separate profit center within the dealership. A used vehicle departments success will depend on many things. One, if not the most important issue is the pricing of the stock, i.e. trade-in’s.

For further information contact www.carsolutions.com.au or write to info@carsolutions.com.au
April, 2006