Car Flippin’ Rationale

My idea to flip a car has drawn some expected criticism, with most noting that car values depreciate whereas homes appreciate. Homes are built on land; land is (mostly) a limited commodity unlike cars. New cars come out every year and new body styles, wear and tear, and overabundance of supply all serve to push down the price of a vehicle.

Absolutely agree with everything I wrote above. Flipping may have been a misnomer as it usually implies providing some additional work to the house to make it more valuable. Instead, what I intended to do was exploit pricing inefficiencies that exist for a variety of reasons. A better term for what I want to do might be trading or pseudo-arbitrage.

Car dealers exploit price differences between wholesale and retail markets to make money: buying a car at auction and reselling to the general public. Legislation, or good sense, prevents consumers from buying at these auctions creating opportunities for dealers. Other dealers may capitalize on price differences based on geography, information (find deals others don’t), or just situation (trades). Without a dealer’s license I can only exploit geographic price differences or information price differences.

Fortunately, a lot of information exists on the Internet about purchase prices, selling prices, and supply to make an informed purchase decision. Some of my favorites are Oodle, Automart’s Price Checker, KBB and Evenlevel. In addition, because of Carmax, there is almost a guaranteed price floor at the trade in price.

Oodle shows aggregated price data on average selling price, broken down by mileage, and supply for a given area. Automart makes it easy to check price dispersion (low, mean/median and high) to gauge market price. Those tools are useful for asking sales price, but the key part is determining what vehicles are available for purchase and where.

Ideally, the auto industry would join web 2.0 and we’d see a bunch of APIs for MMR, ATC, OVE, SmartAuctionOpen, et al and I could set up a program to pick out the best cars… Unfortunately, not the case yet; instead, I need a way to quickly find cars at the best prices. I’ll look to make my purchase from either eBay Motors, Evenlevel or Carliquidators.com.

I’m starting with a basic assumption that car prices are normally distributed with a positive skew, and that using a simple linear regression with mileage as the independent variable I can see how under priced a car might be to the market (on average). So, for example, if the average asking price is $10,000, the car purchase price is $8,000, but the mileage adjustment puts the asking price at $9,000 I would stay away (this is a simplified process, I would also take into account options, condition, et cetera).

Of course, I still have work to do on my car: detail, buy a couple of missing trim pieces, pictures and videos. I also found out that one of my favorite auto companies has a new product called BlockLogic out, look for more information on that coming soon!

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