When a person trades in a vehicle, a dealership either reconditions and sells it, wholesales it or auctions it. Dealerships often make the bulk of their profits by dealing with trade-in cars.
Reconditioning and selling the car is one option a dealership has, but they usually only do it with cars that have less than 80,000 miles and are less than six years old. After reconditioning the car, the vehicle is typically sold at 15 to 20 percent above the trade-in value.
A dealer may also choose to wholesale the car to another dealer. Generally, this occurs with older vehicles with many miles. This also may occur when a person trades a car in to a dealership that sells a different brand, such as trading in a Honda at a Ford dealership. When wholesaling a vehicle, a dealership does not gain much profit, so they do not pay as much for the trade-in.
A dealer can auction a vehicle, too, though it is usually one that has high mileage, is in poor condition or is very old. A dealership may also auction a vehicle if it is not possible to find a wholesale option in the local area. An auction usually brings in the smallest profit for a dealer, so if a seller has a trade-in that may fall into this category, it might be best to sell it to a private party.