How To Sell Used Cars For Profit

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Car Flipping University Summary


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Cashing In On Used Cars

This system will create a useful, easy to understand, comprehensive way that anyone can buy and sell used vehicles, make a profit and feel confident in doing so, because of what they have learned from these technics. How to be in the car business with little or any money of you own : Page 5, 55 & 61 How to buy and sell used cars for profit with very little effort : page 60 & 61 Where to find the best deals, to make large profits : Page 28 How to buy and sell cars for a profit legally without a dealers license : Page 3 What you can do with a dealers license ( if you want one ) : Page 51 Learn how to know what cars to buy and what cars not to buy. How to get a dealers lic. if you want one, on a shoe string budget : Page 52 Learn how to take professional looking photos that attract buyers : Page 15 Make money from cars that you don't even own. Learn how to know the condition of the vehicles before you buy them : Page 93 Know the truth about vehicle history reports : Page 72 Learn how to run the business. Learn how to expand your business. Learn how to sell nationwide and worldwide. Learn how to get some repairs done for free : Page 52 Learn what to sell vehicles for and how to price them : Page 52 Learn the quick and easy way to determine what is wrong with a vehicle Read more here...

Cashing In On Used Cars Summary

Contents: Ebook
Author: R J Webb
Price: $49.95

Selftest Problems And Solutions

Doug Ross, a staff research assistant with Market Research Associates, Ltd., has conducted a survey of households in the affluent Denver suburb of Genesee, Colorado. The focus of Ross's survey is to gain information on the buying habits of potential customers for a local new car dealership. Among the data collected by Ross is the following information on number of cars per household and household disposable income for a sample of n 15 households

Demand Curve Determination

2 At first blush, an 8 percent interest rate assumption might seem quite high by today's standards when 2.9 percent financing or 2,500 rebates are sometimes offered to boost new car sales during slow periods. However, so-called teaser rates of 2.9 percent are subsidized by the manufacturer that is why promotions feature 2.9 percent financing or (rather than and) 2,500 rebates. In such instances, the alternative 2,500 rebate is a good estimate of the amount of interest rate subsidy offered by the manufacturer.

Stepby Step Process to Decision

Because of Canada's dependency on exports for growth, domestic projections begin with the International Department's assessment of developments and prospects of the global economy. Then the analysis focuses on the short-term status of and prospects for the domestic economy. Economic indicators including, for example, recent car sales, housing starts, employment, manufacturers' shipments, retail sales, and merchandise trade are evaluated and recent data revisions are factored in. Other events that could have an impact on the outlook including labor disruptions, unusual weather, and special sales and financial promotions are also surveyed.

The Concept Of Imperfect Competition

Consider the market for automobiles in the United States. It is certainly not a monopoly, since more than a dozen companies sell cars here General Motors, Ford, DaimlerChrysler, Mazda, Toyota, Honda, Volvo, Nissan, and several more. But neither is this market perfectly competitive Each of these firms supplies a relatively large part of the market, so each can affect the market price. Moreover, the product of each firm is different from the products of the others A Toyota is not a Ford, and a Ford is not a Jeep. The market for automobiles, then, falls somewhere between the extremes of monopoly and perfect competition.

Microeconomic Forecast Problems

In contrast with macroeconomic forecasting, microeconomic forecasting involves the prediction of disaggregate economic data at the industry, firm, plant, or product level. Unlike predictions of GDP growth, which are widely followed in the press, the general public often ignores microeconomic forecasts of scrap prices for aluminum, the demand for new cars, or production costs for Crest toothpaste. It is unlikely that the CBS Evening News will ever be interrupted to discuss an upward trend in used car prices, even though these data are an excellent predictor of new car demand. When used car prices surge, new car demand often grows rapidly when used car prices sag, new car demand typically drops. The fact that used car prices and new car demand are closely related is not surprising given the strong substitute-good relation that exists between used cars and new cars. Trained and experienced analysts often find it easier to accurately forecast microeconomic trends, such as the demand for...

Duree Des Travaux Forecast Duration I 1999


Dynamic Regression Models

Drivers demand gasoline not for direct consumption but as fuel for cars to provide a source of energy for transportation. Per capita demand for gasoline in any period, G pop, is determined partly by the current price, Pg, and per capita income, Y pop, which influence how intensively the existing stock of gasoline using capital, K, is used and partly by the size and composition of the stock of cars and other vehicles. The capital stock is determined, in turn, by Income, Y pop prices of the equipment such as new and used cars, Pnc and Puc the price of alternative modes of transportation such as public transportation, Ppf and past prices of gasoline as they Influence forecasts of future gasoline prices. A structural model of

Transfer Pricing in the Integrated Firm

The firm's upstream division should produce a quantity of engines Qe that equates its marginal cost of engine production MO with the downstream division's net marginal revenue of engines NMRi. Since the firm uses one engine in every car, NMRi is the difference between the marginal revenue from selling cars and the marginal cost of assembling them, i.e., MR - MGi. The optimal transfer price for engines Pe equals the marginal cost of producing them. Finished cars are sold at price Pa.

Practicing the Skill

In the automotive business these days, big is out and small is in. Sales of large sport-utility vehicles are down 45 . Small-car sales have increased 70 . Of course, having suffered from 3-plus-a-gallon gasoline for longer, the rest of the world has been thinking small for years. And there is no production car smaller than the Smart Car from DaimlerChrysler. 4. What conclusion can you draw about why small-car sales are increasing while sales of large sport-utility vehicles are decreasing

How the Economy Really Works

William Foster and Waddill Catchings committed this same error. As Hayek pointed out in his critique of the Foster-Catchings debate, investment is actually multistaged and changes form and structure when interest rates rise or fall. Investment is not simply a function of current demand, but of future demand both long-term and short-term interest rates influence investment and capital formation (Hayek 1939 1929 ). For example, suppose the public decides to save more of their income for a better future. Spending for cars, clothing, entertainment, and other forms of current consumption might level off or even fall. But this temporary slowdown in consumption does not cause a broad-based recession. Instead, the increased savings leads to lower interest rates, which encourage businesses, especially in capital-goods industries and research and development, to expand operations. Lower interest rates mean lower costs. Businesses can now afford to upgrade computers and office equipment,...

Quality Uncertainty and the Market for Lemons

Used cars sell for much less than new cars because there is asymmetric information about their quality The seller of a used car knows much more about the car than the prospective buyer does. The buyer can hire a mechanic to check the car, but the seller has had experience with it, and will know more about it. Furthermore, the very fact that the car is for sale indicates that it may be a lemon -why sell a reliable car As a result, the prospective buyer of a used car will always be suspicious of its quality-and with good reason. The implications of asymmetric information about product quality were first analyzed by George Akerlof in a classic paper.1 Akerlof s analysis goes far beyond the market for used cars. The markets for insurance, financial credit, and even employment are also characterized by asymmetric quality information. To understand its implications, we will start with the market for used cars and then see how the same principles apply to other markets. The Market for Used...

Do Expectations About Policy Matter to the Wage Setting Process The answer to this

As any good negotiator knows, convincing your opponent that you will be non-accommodating is crucial to getting a good deal. If you are bargaining with a car dealer over price, for example, you must convince him that you can just as easily walk away from the deal and buy a car from a dealer on the other side of town. This principle also applies to conducting foreign policy it is to your advantage to convince your opponent that you will go to war (be nonaccommodating) if your demands are not met. Similarly, if your opponent thinks that you will be accommodating, he will almost certainly take advantage of you (for an example, see Box 1). Finally, anyone who has dealt with a two-year-old child knows that the more you give in (pursue an accommodating policy), the more demanding the child becomes. Peoples expectations about policy do affect their behavior. Consequently, it is quite plausible that expectations about policy also affect the wage-setting process.8

The new theories of the firm

5 Akerlof's example is that of the used cars market the buyer is unable to exactly evaluate the conditions of the used car offered for sale, and it is likely that if the price demanded is the average one for a car of that age, the specific car offered for sale is of an inferior quality compared to the average one. The cases to which this theory is applicable are numerous from selection among loan applications to selection among potential insurance clients, up to selection among workers on hire.

The Market for Lemons

Consider a market with 100 people who want to sell their used cars and 100 people who want to buy a used car. Everyone knows that 50 of the cars are plums and 50 are lemons. 2 The current owner of each car knows its quality, but the prospective purchasers don't know whether any given car is a plum or a lemon.

Data Sets Used In Applications

Y Per capita disposable income, Pnc Price index for new cars, Puc Price index for used cars, Pp, Price index for public transportation, Pd Aggregate price index for consumer durables, Pn Aggregate price index for consumer nondurables, Ps Aggregate price index for consumer services, Pop U.S. total population in millions.

Limitations of Concentration Ratios and HHI Information

A further important weakness of census concentration ratio and HHI information is that they ignore domestic sales by foreign competitors (imports) as well as exports by domestic firms. Only data on domestic sales from domestic production, not total domestic sales, are reported. This means, for example, that if foreign imports have a market share of 25 percent, the four leading domestic automobile manufacturers account for 66.2 percent (_ 88.3 percent of 75 percent) of total U.S. foreign plus domestic car sales (NAICS 33611), rather than the 88.3 percent, as Table 11.5 suggests. For industries with significant import competition, concentration ratios and HHI data significantly overstate the relative importance of leading domestic firms. Concentration ratios and HHI information also overstate market power for several industries in which increasing foreign competition has been responsible for the liquidation or merger of many smaller domestic firms with older, less efficient production...

Akerlof lemons and Hayek entrepreneurs

The canonical example of Akerlofs lemons model is the used car market. Determining whether a car is a lemon (poor quality) or a cream puff (high quality) requires experiencing the good - driving for a period of time in order to ascertain defects in the vehicle. Owners of used cars have this experience and, therefore, have better knowledge of the car's quality than potential buyers. They know whether it has been properly maintained, whether it has been in an accident, Akerlofs premise is correct in that an effective and efficient mechanism compelling cooperation being absent, human nature elicits opportunistic behavior in markets beset with asymmetric information. Sellers of poor quality goods can internalize the benefits of providing false or misleading information, imposing direct and indirect costs on others. What Akerlofs model tends to ignore, we contend, is the dynamism of markets and the incentive mechanism driving entrepreneurs to discover ways to ameliorate problems associated...

Specialization And Distribution

General Motors makes millions of automobiles, but not a single tire. Instead, it buys its tires from Goodyear, Michelin and other tire manufacturers, who can produce this part of the car more efficiently than General Motors can. Nor do automobile manufacturers own their own automobile dealerships across the country. Typically, automobile producers sell cars to local people who in turn sell to the public. There is no way that General Motors can keep track of all the local conditions across the length and breadth of the United States, which determine how much it will cost to buy or lease land on which to locate an automobile dealership, or which locations are best in a given community, much less evaluate the condition of local customers' used cars that are being traded in on new ones.

Sarah Brown and John G Sessions

If it is impossible to observe the quality of a particular good at the time of purchase, even if buyers do eventually learn of average quality, goods will be traded at a price reflecting this average. Moreover price will adjust until buyers' beliefs about this average quality are confirmed ex post. Such markets will tend to exhibit two undesirable characteristics (a) sellers may attempt to lower cost by lowering quality (b) if sellers cannot 'shave' quality, the sellers of high-quality products, with higher opportunity costs, may prefer to withdraw from the market. Average quality may thus fall below that in a world of complete information and adverse selection problems arise. This problem was highlighted by Akerlof (1970) who showed that the process would continue until only the lowest quality 'lemons' were traded on the market. Akerlof used the example of a second-hand car market and focused on a key information asymmetry the owner of a used car is better informed about its quality...

The Lemons Problem How Adverse Selection Influences Financial Structure

A particular characterization of the adverse selection problem and how it interferes with the efficient functioning of a market was outlined in a famous article by Nobel prize winner George Akerlof. It is referred to as the lemons problem, because it resembles the problem created by lemons in the used-car market.3 Potential buyers of used cars are frequently unable to assess the quality of the car that is, they can't tell whether a particular used car is a good car that will run well or a lemon that will continually give them grief. The price that a buyer pays must therefore reflect the average quality of the cars in the market, somewhere between the low value of a lemon and the high value of a good car. The owner of a used car, by contrast, is more likely to know whether the car is a peach or a lemon. If the car is a lemon, the owner is more than happy to sell it at the price the buyer is willing to pay, which, being somewhere between the value of a lemon and a good car, is greater...

Property Rights And Political Stability

Discussed economic interdependence in Chapter 3, production in market economies arises from the interactions of millions of individuals and firms. When you buy a car, for instance, you are buying the output of a car dealer, a car manufacturer, a steel company, an iron ore mining company, and so on. This division of production among many firms allows the economy's factors of production to be used as effectively as possible. To achieve this outcome, the economy has to coordinate transactions among these firms, as well as between firms and consumers. Market economies achieve this coordination through market prices. That is, market prices are the instrument with which the invisible hand of the marketplace brings supply and demand into balance.

Why Some Frictional Unemployment Is Inevitable

Similarly, because different regions of the country produce different goods, employment can rise in one region while it falls in another. Consider, for instance, what happens when the world price of oil falls. Oil-producing firms in Texas respond to the lower price by cutting back on production and employment. At the same time, cheaper gasoline stimulates car sales, so auto-producing firms in Michigan raise production and employment. Changes in the composition of demand among industries or regions are called sectoral shifts. Because it takes time for workers to search for jobs in the new sectors, sectoral shifts temporarily cause unemployment.

Uncontrollable factors

If any factor, controllable or uncontrollable, is expected to change in the future, this can affect current sales. For example, it has been estimated that car sales in the UK in 2000 were 300,000 units lower than they otherwise would have been because prices were expected to fall. Similarly, expectations of changes in income, climate, government policy and competitive factors can all affect current demand.

Transaction cost theory

A classic example of this is the secondhand car market, where sellers have a big advantage over buyers. This has many consequences for the market, which are discussed later, but one obvious effect is that buyers may have to devote resources to obtaining more information (for example, paying for an engineer's inspection of a car).

Exhibit 5

When a 1,000 tax is imposed statutorily on the sellers of used cars, the supply curve shifts vertically upward by the amount of the tax. The price of used cars to buyers rises from 7,000 to 7,400, resulting in buyers bearing 400 of the burden of this tax. The price received by a seller falls from 7,000 to 6,400 ( 7,400minus the 1,000 tax), resulting in sellers bearing 600 of the burden. of the new supply curve including the tax, and the demand curve). Thus, despite the tax being statutorily imposed on sellers, the higher price shifts some of the tax burden to buyers. Buyers will now pay 400 more for used cars. Sellers now receive 7,400 from the sale of their used cars. However, after sending 1,000in taxes to the government, they retain only 6,400. This is exactly 600 less than the seller would have received had the tax not been imposed. Because the distance between the supply curves is exactly 1,000, this net price can be found in Exhibit 5 by following the vertical line down from the...

Bad judgement

In 1921 Ford made 55 of the cars sold in the United States and General Motors (GM) made 11 . GM's business strategy had a number of fundamental flaws. The divisions (Chevrolet, Pontiac, Buick, Oldsmobile, and Cadillac) made very similar cars, so the divisions were competing with each other. The economy was in recession, and car sales were sluggish. Nevertheless, each division continued to overproduce, resulting in unprofitable inventory accumulation. The company did not have a strategy for making division managers take into consideration the cost that inventory accumulation imposed upon GM.

The Usedcar Market

The used-car market is one of the hidden characteristic problems for which the market system has not developed a completely satisfactory solution. Many used cars on the market are lemons cars that frequently require expensive repairs. Individuals who purchase new cars often try to sell them when they are discovered to be lemons, and hence the used-car market contains a disproportionately high number of low-quality cars. This depresses the price of used cars because the buyer can't tell which are lemons. There is asymmetric information. Many car owners who would otherwise put their good cars up for sale find that the selling price of their cars is too low. They are better off continuing to drive their high-quality automobiles than selling them for a low price that reflects the low average quality in the used-car market. This further lowers the average quality of used cars at equilibrium, resulting in an even lower equilibrium price. And so on. In terms of the economist's jargon, many...

Buyers And Sellers

When you think of a seller, your first image might be of a business. Indeed, in many markets, you'd be right The sellers are business firms. Examples are markets for restaurant meals, airline travel, clothing, banking services, and video rentals. But businesses aren't the only sellers in the economy. In many markets, households are important sellers. For example, households are the primary sellers in labor markets, such as the markets for Web page designers, for accountants, and for factory workers. Households are also important sellers in markets for used cars, residential homes, and rare artworks. Governments, too, are sometimes important sellers. For example, state governments are major sellers in the market for education through state universities (such as the University of California, the University of Minnesota, and St. Louis Community College).


Suppose that because of sluggish car sales. Ford is considering a 10 percent price cut to stimulate demand. It must think carefully about how GM and Chrysler will react. They might not react at all, or they might cut their prices only slightly, in which case Ford could enjoy a substantial increase in sales, largely at the expense of its competitors. Or they might match Ford's price cut, in which case all three automakers will sell more cars but might make much lower profits because of the lower prices. Another possibility is that GM and Chrysler will cut their prices by even more than Ford did. They might cut price by 15 percent to punish Ford for rocking the boat, and this in turn might lead to a price war and to a drastic fall in profits for all three firms. Ford must carefully weigh all these possibilities. In fact, for almost any major economic decision a firm makes-setting price, determining production levels, undertaking a major promotion campaign, or investing in new production...

Getting a Deal

A new car is exciting, offers warranties, and requires fewer repairs. But a new car depreciates (loses value) the minute you drive it off the lot. Used cars depreciate more slowly and cost a lot less to begin with. Some even offer limited warranties. Used Cars Check the Internet or newspapers for ads. If you're buying from a dealer, ask for names and phone numbers of previous customers. Contact them or the Better Business Bureau for any complaints against the dealer. Weed out the lemons with these tips 3. Describing Describe the process a smart car buyer would use before visiting a car dealer.

Search this book

Aucnet USA, Inc. (http, a new player in the wholesale used-car market, combines the role of quality guarantor with digital technologies that organize and facilitate market transactions. The idea of Aucnet originated from a Japanese used-car dealer who saw an opportunity in dealer-to-dealer trading. Used-car buyers are physically limited to visit all dealers, and as a result some dealers may have excess inventory while others may be unable to meet demand. A dealer-to-dealer exchange network, however, is also constrained by the difficulty in moving cars. Aucnet, instead, organizes a market for information on used cars trading in a satellite auction market.

Hidden information

The first problem relates to the existence of asymmetric information. Sometimes this is referred to as hidden information, meaning that one party to a transaction has more information regarding the past that is relevant to the transaction than the other party or parties. An example is the secondhand car market, where sellers have much more information about the history and condition of the car than buyers. This situation provides an incentive for pre-contract opportunism this means that one party can try to take advantage of the other by obtaining better contractual terms than they would obtain under conditions of perfect information. Thus in the secondhand car market sellers will try to obtain higher prices than they would get if buyers had complete knowledge this presents a strategic situation, since buyers know this and will therefore not be prepared to pay as much as they might otherwise do. In turn this leads to a problem known as adverse selection. This means that only the...


Recall our model of the used-car market the owners of the used cars knew the quality, but the purchasers had to guess at the quality. We saw that this asymmetric information could cause problems in the market in some cases, the adverse selection problem would result in too few transactions being made. However, the story doesn't end there. The owners of the good used cars have an incentive to try to convey the fact that they have a good car to the potential purchasers. They would like to choose actions that signal the quality of their car to those who might buy it. the good used cars can afford to offer such a warranty while the owners of the lemons can't afford this. This is a way for the owners of the good used cars to signal that they have good cars. In this case signaling helps to make the market perform better. By offering the warranty the signal the sellers of the good cars can distinguish themselves from the sellers of the bad used cars. But there are other cases where signaling...

The Akerlof problem

Markets for used cars (Akerlofs favorite example) thrive, however, notwithstanding the pervasiveness of asymmetric information in this market. We also witness successful exchanges in such markets as automotive repair, software, and home remodeling and construction, markets consisting of experience goods in which asymmetric information is prevalent. Attributing the success of these markets to government intervention and regulation is dubious.

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