Carvana, Vroom, Shift and others with a focus on selling used vehicles online — and that should include most dealers at this point — have made it clear they want to buy as many cars off the street as they can.
With demand elevated amid shortages of new product, auto retailers want to make sure they have a diverse supply of inventory to offer customers. And buying customers' cars typically means much higher margins as those vehicles often are acquired at far lower prices than their counterparts at wholesale auctions.
But there apparently are limits to buying from the private-seller market, vast as it may be. I'm reminded of this every time I hear about someone seeking a trade-in valuation from one of the online used-vehicle retailers, or even when I use them myself.
The most recent example comes from a friend who sold his beloved, bright green 2011 Ford Fiesta hatchback. He had racked up 230,000 miles on the little car but had also taken care of it meticulously. It was in great shape.
Ready to trade it in for something newer, he turned to one of the online sellers to buy a near-new crossover. He had intended to sell that company his Fiesta as well.
But he was offered a mere $300 for the hatchback, which some readers will know is probably less than what he would get from scrapping the thing. Although he did not want to deal with the hassle of selling the Fiesta himself on the private market, he also knew it would certainly fetch more than $300 if he did so. And he was right.
He ended up listing the Fiesta for $2,300 on Craigslist and then selling it for $2,000 cash less than 24 hours later.
The vehicle's age and mileage no doubt put it outside the sweet spot for online retailers. Likely the car was not seen as worth the logistical costs of buying it. The situation reminded me of when one of the online retailers' valuation tools put my own vehicle, a 2005 Mitsubishi Montero, at around $700, even though I knew I could get at least $5,000 for it.
Is there a glitch in the trade-in algorithm? Maybe not. It's obvious there's a basement for used vehicles that online retailers, and probably many dealers, have little interest in entering. But buying and selling is still happening down there.