This thread has been a fascinating read for me. I arrived here after Googling "Why are Edmunds prices so low?", which seems to be a very common search (after typing "Why are Edmunds" into the search box, the first suggestion was my exact question).
First, in the name of full disclosure, I am a licensed used car dealer in the state of Georgia. I am an independent auto broker, with the bulk of my business coming from clients searching for a particular make and model, down to details as specific as as heated seats, navigation and color choices. I also carry anywhere between four and eight vehicles in my inventory at any given time, usually "highline" vehicles such as BMW, Lexus, Acura, etc., though I will sell any make and model that makes sense financially.
Many of you have asked what the average markup or profit is for used cars sold by dealers. I can speak only for myself, but my goal is to make roughly $1,600 profit on each vehicle after reconditioning costs; sometimes I make more, and very often I make far less, just to move the inventory along. Not exactly a king's ransom, but enough to keep the lights turned on and provide motivation to keep the business up and running.
Before I continue, I want to be clear that I view Edmunds as a fantastic source of information regarding vehicle reliability, performance, specs and reviews, and I visit the site dozens of times a month for this sort of input.
That being said, I decided to ask Google about Edmunds' pricing because I, like so many others here, find their numbers to be absurdly low and not at all indicative of the real world. When I am considering purchasing a vehicle, either for a brokerage client or for my inventory, I always check multiple guides for suggested pricing, including Edmunds, KBB, NADA, Black Book (dealers only/subscription only), and ClearBook. I also look at AutoTrader.com and Cars.com to get a feel for what else is available in the market. Without fail, Edmunds' "True Market Value" prices are the lowest of any of the guides, with their suggested RETAIL price often 15-20% below the Black Book WHOLESALE price, and are also nowhere near the actual prices being asked by local dealers and private sellers alike (and yes, I understand that asking price and selling price are rarely one and the same, except in the case of classics or rare cars).
For example, this morning I purchased a 2001 BMW 330Ci convertible with hard top from a large dealer-only wholesale auction. The car has 92,444 miles on it, has had only one owner and has a clean Carfax report with no accident history. It's loaded with every option that was available at the time, other than a navigation system. The condition is outstanding, especially considering the vehicle is now 12 years old.
Here are the suggested retail prices listed by each of the sources I checked, from highest to lowest, as well as the "Average" and "Clean" wholesale prices recommended by the industry-standard Black Book:
Black Book Wholesale "Clean" Condition: $11,900
Black Book Wholesale "Average" Condition: $9,800
EDMUNDS TMV RETAIL: $8,629
**These prices are as of January 11, 2013, so they will obviously differ for those of you reading this post in the future. However, the pricing discrepancy between Edmunds and the rest will likely persist.**
Now, keep in mind that I purchased this car from a wholesale auction that is closed to the public, and was bidding against other dealers who are educated on the marketplace and desirability of the cars they bid on. My winning bid for the car was $9,250, which is a bargain because it's the middle of January and the auction was in Pennsylvania (not exactly convertible season up there right now). The auction adds $275 in buyer's fees, plus $170 for a post-sale inspection to ensure that there are no hidden mechanical problems or undisclosed body/frame damage. I'll pay $300 to have the car transported from Pennsylvania to Georgia. So, after fees and transportation, my total investment in the car is almost exactly $10,000 on the nose. My initial list price will be $12,595, with the expectation that I'll be talked down by 10%. So, basically, I hope to sell this car for around $11,400-11,800 after some light haggling (just part of the process, unfortunately).
Now that you know what I paid for this particular BMW, take another look at the suggested pricing above. ClearBook, KBB and NADA all priced the car within roughly $1,000 of each other, and about $2,000 above the Black Book "Average" condition price, leaving me some room for profit after expenses are covered. However, according to Edmunds, a buyer should be able to purchase that same car from me for $1,371 LESS than my wholesale cost, and $1,171 less than even the Black Book "average" condition wholesale price. Keep in mind that this is a one-owner car that is in well above average condition.
I've sold two 2001 330Ci convertibles nearly identical to this one in the past 12 months.One with 106,xxx miles
sold for $10,000 ON EBAY and one with 76,xxx miles
sold to a local buyer for $12,500 plus 7% sales tax. Neither of them had the optional hard top, which is a very desirable item for many buyers and should add an additional $500 or so to the price.
And folks, this is not an anomaly; I could run each car in my inventory through the same process, and in virtually every case, the Edmunds TMV price would be 20-30% lower than any other guide. This is not a new phenomenon, either. For as long as I can remember, the Edmunds price has seemed as though it's just completely made up out of whole cloth, and not based on any sort of actual data. Kelley Blue Book tends to be slightly overpriced on most cars, while NADA and ClearBook tend to be most aligned what's actually going on in the marketplace. In this particular case, KBB is right on the money.
Steve, you've taken on the role of de facto Edmunds spokesperson in this thread since you're an employee, but you've offered absolutely no concrete evidence to support your claims that TMV pricing is in any way accurate or fair. Instead, you've chosen to denigrate the other guides as unreliable or some sort of industry collusion, and painted used car dealers as shady operators who "don't like educated consumers" and will do anything to milk every penny out of them while we laugh all the way to the bank.
While there are certainly people in this industry who don't represent us well, the large majority of used car dealers are honest businesspeople who are trying to make a decent living selling a good product at a fair price. The market has a way of ensuring that we won't get too much or too little for our cars; unfortunately the "PhD types in the home office" who create your secret formula are grossly underinformed about the market in nearly every case, which is why a thread like this can go on for years without a clear answer to the original question: WHY?
I realize that most of the original commenters in this thread probably moved on long ago, but I wanted to insert my two cents to ensure that anyone who happens upon the conversation down the road is better educated about the reality of the pricing guides.
And for anyone who may be wondering, whenever a customer presents me with a printout of an Edmunds TMV report for a car I'm selling and tells me I'm asking far too much, I just present them with four other reports that support my price. I don't get insulted, and I certainly don't treat them rudely; I just try to explain that Edmunds TMV pricing is, unfortunately, completely unreasonable and arbitrary. Maybe someday we'll get an acceptable explanation for the discrepancy, but I'm not holding my breath.