Hi Pops, I am a finance manager at a dealership on the prairies. So my experience is part sales side and part bank side.
Just to clarify what I said above, cars out west are generally worth more than easter(n) bunnies, they tend to look better and require less R and R to resell. But dealers out west don't generally allow for the geographical premium the book publishes. One primary reason is the banking industry, which (with few exceptions) doesn't allow for it either. Often the loan to value needs to stay under 170% of CBB, without allowance of the geographical premium. Many lenders require Capitalized cost to stay under 125% of CBB.
Now Pops, as to your question of rule of thumb, I'd have to say no. Reason being every used vehicle is different. Assume there are two virtually identical units. The dealers paid the same to aquire them, but one required an extra $1500 dollars to recondition for resale. It is impractical to expect to recover the $1500 on the retail market, why would someone pay $1500 more retail for the same truck they could buy across the street for less? To be competitive, the prices would have to be competitive. If they both sold for the same price, the dealer who needed to spend more on the unit would realize a reduced profit. Dealer (a) may have realized a 30% premium over book, but dealer (b) only 10%.
Another factor is stale inventory. Generally dealers don't pay for their inventory, it is put on a floor plan for financing. Vehicles in inventory over 90 days become interest charging liabilities. Dealers are highly motivated to dispose of old stock to alleviate this expense. Stale units can be liquidated at a loss, which is cheaper than carrying interest on a unit over a long period of time. Also the capital investment can then be converted into something more salable, which can generate profit to offset the loss.
Car dealers play the lottery with every car they buy. Some they win on, some they lose, but the volume is high enough, and the odds stacked in favour of the house, that it generally is a profitable enterprise. The high risk and volatile state of the used car market however makes it unadvisable for a general consumer to play this lottery.
