Consignment vs buying outright: what a dealer should do
Buying a car outright usually earns a bigger margin per car, while consignment earns a smaller fee but ties up almost no capital and leaves the price risk with the owner. The right call depends on the car, how fast it will sell, and how much cash you have tied up already.
- Buying: bigger gross per car, but your money is tied up and you wear any price drop.
- Consigning: smaller fee, close to zero capital, owner wears the price risk, but more admin and the owner can pull out.
- Measure return on capital and days to sell, not just gross per car.
- Offering the seller both options side by side often wins cars you'd otherwise lose to a trade-in.
The trade-off in one table
| Buy outright | Consign | |
|---|---|---|
| Capital tied up | Purchase price plus recon | Little or none (maybe recon you front) |
| Margin | Retail minus all your costs | Agreed fee or commission |
| Price risk | Yours | The owner's |
| Holding cost | Yours, every day | Mostly the owner's opportunity cost |
| Control | Full: price, recon, wholesale exit | Price changes need the owner's OK |
| Admin | Standard | Agreement, approvals, trust account where required, settlement statement |
| Can the deal walk? | No, once bought | Yes, owner can withdraw |
Worked comparison
Example only. A car that retails at $25,000 and takes 45 days to sell. Capital cost 10% a year.
| Line | Buy outright | Consign |
|---|---|---|
| Purchase price | $20,000 | $0 |
| Recon | $1,200 (yours) | $1,200 (fronted, recovered at settlement) |
| Holding cost, 45 days at 10% a year on money tied up | $261 | $15 (on the fronted recon) |
| Advertising | $300 | $300 (or charged as a marketing fee) |
| Sale price | $25,000 | $25,000 |
| Your income | $25,000 sale | $1,800 commission |
| Your profit | $3,239 | $1,485 |
| Peak cash tied up | $21,200 | $1,200 |
| Return on cash tied up over 45 days | 15% | 124% |
On these sample numbers, buying makes more dollars per car, while consigning makes far more per dollar invested. If you have $100,000 of capital, that's roughly four or five bought cars at a time, or many more consigned ones.
What changes the answer
- Price drops. Knock $1,500 off the sale price in the example and the bought car's profit falls to $1,739. The consigned car's fee barely moves on a percentage, and doesn't move at all on a flat fee.
- Days to sell. Every extra day adds holding cost on a bought car. Slow sellers favour consignment.
- Buy price. If you can buy well below retail, buying wins. If the owner wants close to retail, consign it.
- Cash. If your capital is already tied up in aged stock, consignment lets you keep the yard full.
- Your state. Victorian traders can't consign for private owners, so buying is the main option there.
Offer the seller both
A seller who won't take your buy price may happily consign, and the reverse. Show both numbers side by side: what they get today if you buy, and their estimated net if you consign after your fee. Check the consignment net with the consignment commission calculator and your buy margin with the car margin calculator. Holding cost on bought stock is in the holding cost calculator.