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The Anatomy of Buying a Car

Updated on November 18, 2011

Buying new or used car can be easy. It can be a take or leave it deal. It really all comes down to how much profit will the deal make for the car dealership. Usually, they want to make $3-4,000 on the deal including your trade in. Seldom will you ever have a trade in and no money will exchange hands.

Dealerships rely on what the Black book states, not what the Kelly Blue book or other online estimates are regarding your trade in. Those sites are for consumers and banks. The Black Book is a program which will tell the dealer what your car is worth in a trade-in and retail, or the most they might sell it for.

As a buyer, keep in mind that the price of car does not include taxes and DMV fees which will easily add another $1000 or more to the car. These fees do not go to the dealer and are not considered in the dealer calculation of their profit. The total price of a car will include the tax and DMV fees.

For example:

A trade in of a 2005 Subaru Outback 3.0 Eddie Bauer is worth at trade in with 91K miles between $11,000 and $11,500. The car, at most, should retail for not more than $15K. It is more likely it would sell for $14K. Let's say the car you are interested in is a 2008 Toyota Corrola S with 35K selling for $12,000. The total cost of fees the dealer pays is around $1200. Thus, the total cost of the car to you is $13,200. With your trade in of $11,000, you will have to pay $2200 to get the Toyota. The dealer is making around $900 on this trade-in action and when he sells the Subaru, he will make another $3-4K, depending on what it sells for. The gamble for dealer is how long will take to sell the trade in.

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