The dealer will buy a car at auction for $2000, then offer it for sale for $5000 but you HAVE to finance it through them. They will NOT let you pay cash.
I doubt that is true for most of these dealers. I knew someone in the "low end" used car profession and you'd be hard pressed to find a more unpleasant person. He owned a Ford F-250 with a pneumatic lift used to tow cars. He bragged about how he could sell the same car to three different people by simply waiting for them to not be able to make a payment and simply go reprocess the car and put it back on the lot. All at a profit. The only problem being is that this took time and a lot of work which is only offset by volume.
I purchased a Honda Accord from him that he recently purchased at auction. I was able to buy it from him at a price well below Kelly Black Book. I accomplish this because I had cash, was stubborn, and figured that while he could probably finance some cars during the week it was rare someone could give him a nice profit with little work. Profit that he could use in short order at the next automobile auction.
I figured the worst thing that could happen was that he would say no. If that would have happen then I would have simply taken my cash elsewhere.