and there is a new model on the way
This will have an impact on future residual values of the outgoing model
the Volvo was predicted to be worth around £12k after 60k miles and three years
Again the outgoing model but the residuals are always set conservatively and they normal quote a figure which is around 85% of the predicted future value. So in theory the true trade value is 3 years is more likely to be £14k ish.
This got my interest. Then checking the official Volvo used car page, it was displaying similar models but perhaps even older for about 6-8k more than its own predicted residual price!!
I suspect that the current model has a trade value today
of somewhere between £16K and £18k. The dealer would advertise the vehicle for around £2000 more than the trade price. If they then sold the car for the advertised price, they would have to pay VAT of £400, the vehicle preparation costs could be around £500 (servicing, removing dents, etc). The buyers will also expect more for their part exchange than it is really worth (Called an over allowance), and this could be another £500 deducted from the profit. So although the dealer might start with £2000, they then have to deduct the above and they could be left with say £600 profit. And that is before the Sales person is paid any commission.
The other thing to consider is that some of the vehicles that are £8k more than the predicted residual you mention, could also have a couple of thousand pounds worth of extras and the dealer will try and sell these vehicles for more because of the extras.
Dealers make more money on 2nd-hand cars than on new, or so I'm told.
True. Dealers make very little if anything from new sales as they are chasing manufacturer targets etc. In fact one of the reasons they may use the likes of drive the deal is just to get volume and then hope that they hit their quarterly or annual target. Risky as if they fail to hit that target, they may not get any bonuses and they may already have sold the vehicles at a loss. If it wasn't for used car sales, i suspect many businesses would go out of business fairly quickly.