Chapter 19 — Quiz: Appraising and Pricing Used Inventory
Test your mastery. Answers and short explanations are hidden in
<details>blocks — answer first, then check. Scoring guide at the end.
Part 1 — Multiple Choice (10 questions)
Q1. The core difference between cost-based and market-based pricing is that market-based pricing:
A. Always results in a lower price B. Sets the price from what comparable cars are selling for right now, regardless of your cost C. Ignores reconditioning costs D. Is only used by independent dealers
Answer
**B.** Market-based pricing sets the price from the live market for comparable cars, not from what you paid. Your cost determines whether you should have *bought* the car; the market determines what you can *sell* it for. (It doesn't always mean a lower price — sometimes the market supports more than you'd have guessed.)Q2. A car priced at $21,000 in a market where comparable cars average $20,000 is at what price-to-market?
A. 95.2% B. 100% C. 105% D. 110%
Answer
**C.** ($21,000 ÷ $20,000) × 100 = 105%. That's above the visible cluster — shoppers who sort by price will likely scroll past it.Q3. Why is "your price is your front door" online?
A. Because the price is printed on the windshield B. Because shoppers sort listings by price, so an overpriced car becomes invisible on page two or three C. Because the price determines the photos D. Because lenders set the price
Answer
**B.** Shoppers overwhelmingly sort by price (low to high). Cars at the top get seen by everyone; overpriced cars buried below the fold get seen by almost no one — so your price determines whether you're even in the running.Q4. A lot has 90 cars and sold 45 in the last 30 days. What's its days' supply?
A. 30 days B. 45 days C. 60 days D. 90 days
Answer
**C.** (90 ÷ 45) × 30 = 2 × 30 = 60 days' supply.Q5. Two dealers each have $2M in inventory and make $1,800/car. Dealer A turns 4×/year; Dealer B turns 8×/year. Compared to A, Dealer B's annual gross is approximately:
A. The same B. Half C. Double D. Four times
Answer
**C. Double.** Same inventory dollars, same gross per car, but twice the turn means twice the cars sold — roughly double the annual gross. Speed beats greed.Q6. On a typical $20,000 used car, the largest component of daily holding cost is usually:
A. Floor-plan interest B. Depreciation C. Lot detailing D. Insurance
Answer
**B. Depreciation.** At ~2.5%/month it runs ~$16–17/day — far more than floor-plan interest (~$4–5/day). It's the "hidden killer" because it never shows up on an invoice, so slow operators ignore it.Q7. The "60-day rule" means:
A. A car must be reconditioned within 60 days B. Most used cars should be sold and gone within ~60 days; one still on the lot at day 60 needs action, not hope C. Loans must be 60 months D. Arbitration must be filed within 60 days
Answer
**B.** The 60-day rule (some run it at 45) says most used cars should sell within ~60 days. A car past the wall is a problem requiring an aggressive price move, a wholesale-out, or a spotlight — not patience.Q8. At a wholesale auction, a 🟡 yellow light means:
A. The car is sold as-is with no recourse B. There is a known, announced issue (e.g., frame repair or odometer discrepancy) disclosed to buyers C. The seller guarantees the car is flawless D. The title is missing
Answer
**B.** Yellow = caution: a specific known problem has been *announced.* You're buying it knowing the disclosed issue; arbitration is limited to what *wasn't* announced. (As-is with no recourse is red; a flawless guarantee doesn't exist; missing title is often blue/varies by auction.)Q9. Sofia buys a green-light car and finds undisclosed structural damage. For her arbitration to succeed, she most needs to:
A. Wait a few weeks to gather more evidence B. Act fast — within the auction's time limit — with documentation, confirming the defect exceeds the dollar threshold and falls in an arbitratable category C. Repair the car first, then file D. Resell the car and dispute later
Answer
**B.** Arbitration has strict **time limits, dollar thresholds, and categories.** She must report *promptly* (inside the window), with documentation, for a qualifying defect (structural is a classic one). Waiting weeks (A) or repairing first (C) typically kills the claim.Q10. You sell a used car for $22,000. You paid $16,000 at auction, $500 in fees, $1,400 in recon, and it sold at day 40 (~$25/day holding). The *headline spread* is $6,000, but the real gross is about:
A. $6,000 B. $4,600 C. $3,100 D. $1,000
Answer
**C. ≈$3,100.** $22,000 − $16,000 − $500 − $1,400 − (40 × $25 = $1,000) = $3,100. The headline spread ($6,000) is roughly double the real gross because fees, recon, and holding all come out of it.Part 2 — True / False (5 questions)
State true or false and give a one-line justification.
Q11. "We have too much money in this car, so we should price it above market to make it back."
Answer
**False.** The market never heard of your cost. Pricing above market makes the car invisible (shoppers sort by price), so it sits, ages, and depreciates — and you sell it for *less* than market would have paid you fresh, after burning holding cost. "Too much in it" is a buy problem, never a reason to misprice the sell.Q12. Depreciation stops once a car is sitting on a dealer's lot waiting to be sold.
Answer
**False.** A used car keeps depreciating while it sits — it accumulates market age and the market pays a little less every week (~2–3%/month for a typical car). It's a melting ice cube; the melt never stops.Q13. The wholesale-to-retail spread is the dealer's profit on a used car.
Answer
**False.** The spread is *gross before costs.* Reconditioning, fees/transport, and holding cost all come out of it. Real gross is often less than half the headline spread.Q14. A red-light car at auction is sold with full arbitration rights.
Answer
**False.** Red = sold **as-is,** no representations, no arbitration. What you see is what you get. Only experienced buyers who can absorb the risk should bid on red lights.Q15. A car still on the lot at day 70 will probably sell for more than it would have in its first two weeks, because the dealer has had more time to find the right buyer.
Answer
**False.** Exactly backwards. The aging curve falls — the best gross is in the golden window (first ~14 days). A 70-day car is older, the market has drifted down, and it carries the "why's this still here?" stigma. It will sell for *less,* after eating weeks of holding cost.Part 3 — Short Answer (4 questions)
Q16. Write the price-to-market formula and explain what target band (in %) you'd aim for on a clean car you want to move, and why.
Answer
**Price to market = (your price ÷ avg market price) × 100.** Aim for roughly **95–99%** for a clean car you want to move — that's the *visible cluster* where shoppers who sort by price will both *see* you and *trust* you. Being the absolute cheapest (well under 95%) can leave money on the table and can signal "something's wrong"; being above ~100% risks burying you below the fold.Q17. Explain, with the turn formula, why doubling your inventory turn roughly doubles your income on the same money invested.
Answer
**Turn = units sold/year ÷ avg inventory.** If you hold the same average inventory (same dollars tied up) but turn it twice as many times, you sell twice as many cars per year. At the same gross per car, twice the cars = roughly twice the annual gross — without needing a bigger gross per unit or more capital. Velocity multiplies a per-car gross into total income.Q18. A car has been on the lot 60 days. Name three concrete actions (not "wait and hope") a manager should take, and briefly justify why action beats patience here using holding-cost reasoning.
Answer
Any three of: **(1)** an aggressive price move into (or below) the visible band; **(2)** wholesale it out (sell back at auction or via a dealer trade) to stop the bleed; **(3)** spotlight it in advertising/merchandising (fresh photos, featured placement); **(4)** a dealer trade to a store where that segment sells better. Action beats patience because the car costs ~$25–30/day to hold *and* keeps depreciating — every day of "hope" makes the eventual number *worse,* not better. Cut the loss before it grows.Q19. You're building your max bid at auction. Write the formula (in words) and explain why bidding even $500 over it directly destroys gross.
Answer
**Max bid = retail-the-market − reconditioning − fees/transport − target gross.** Every dollar above the max comes *straight out of* the target gross, dollar for dollar, because the *market* (not your cost) caps the retail selling price — you can't raise the sell price to recover an overbid. So $500 over your max = $500 less gross on that car, with no way to earn it back on the sell side.Part 4 — Applied Scenario (2 questions)
Q20. Summit's used manager shows Jordan a clean SUV that's been on the lot 73 days, currently priced at $21,800,** in a market where comparable SUVs now average **$20,500. (a) What's its current price-to-market? (b) Is it still mispriced, and which way? (c) What should the manager do today, and what's the root-cause lesson about when this money was actually lost?
Answer
**(a)** ($21,800 ÷ $20,500) × 100 = **106.3% to market.** **(b)** Yes — still *over* market, at **day 73,** which is absurd; it should be in the visible band or below. **(c)** Today: drop it aggressively into (or just below) the visible band — e.g., ~$19,900 — to get it *gone,* because it's already burned ~$1,800 in holding cost and loses ~$25–30/day more. The root-cause lesson: **the money was lost the day it was priced,** not the day it's finally sold. Priced at ~$20,100 (98%) on day one, it would have sold in the golden window for *more* than it'll get now. Pricing high "to leave room" wasted the days where the gross actually lived. (This is the Jordan scene from §19.5.)Q21. Sofia is at auction with a written max bid of $16,500** on a compact SUV (the segment her days'-supply numbers say she needs). The bidding reaches **$16,900 and the auctioneer is looking right at her; she has a customer in mind and the lot is light on SUVs. (a) Does she bid? (b) What's the discipline lesson? (c) If she'd won it at $16,900 and her recon/fees/target-gross math was built on $16,500, what happens to her gross?
Answer
**(a)** **No** — $16,900 is $400 past her written max. **(b)** The discipline lesson: your max bid already *includes* a fair gross, worked backwards from the market; the best auction buyers are the most comfortable going home empty-handed. Wanting the car, having a customer in mind, and being light on inventory are *exactly* the emotional pulls the auction is engineered to exploit — and none of them change the math. There's always another car. **(c)** Her gross drops by **$400** (to whatever was left after the overbid), because the *market* caps the retail price — she can't raise the sell price to recover the overbid. Over a week of overbidding on multiple cars, that vaporizes thousands in gross before a single customer arrives.Scoring Guide
- 19–21 correct (90%+): Excellent. You understand market-based pricing, the speed metrics, the aging curve, and auction discipline cold. You're ready for Chapter 20 (selling used).
- 15–18 correct (70–86%): Solid. Re-skim any section tied to a missed question — especially the price-to-market math (§19.2) and the holding-cost/aging logic (§19.4–19.5), since those drive everything. Then proceed.
- 11–14 correct (52–67%): Partial. Re-read §19.1–19.5 carefully and re-work the calculation exercises in
exercises.mdParts B before moving on. The math here is the spine of the chapter. - Below 11 (under 50%): Re-read the chapter, paying special attention to the worked examples (Slow Sam/Fast Fiona, the holding-cost table, Jordan's 73-day unit, Sofia's max-bid math). Do the Part B exercises with the answers visible, then re-take this quiz.
Key concepts you must have down before Chapter 20: market-based vs. cost-based pricing · price-to-market % and "shoppers sort by price" · turn and days' supply · holding cost and the melting-ice-cube idea · the aging curve and the 60-day rule · the auction light system and arbitration rules · wholesale-to-retail spread vs. real gross.