We all know what a critical role pre-owned sales plays in your profitability. Dealers all agree that we collectively need to do a better job of pre-owned sourcing in order to thrive in the most competitive automotive environment we have ever seen. Everyone “agrees”, yet it is apparent when I’m with dealers in quarterly reviews, 20 group meetings, conventions, and in-store, that dealers are struggling to solve their sourcing problems. I hear the same things over and over, “we need better used cars”, “I can’t buy anything at the auction”, “we want to focus on buying cars off the street”, and so on.
But, when we start looking under the hood and having detailed discussions about current sourcing practices, it feels like 1997 all over again. Dealers all say they want to do a better job of sourcing, but every sign in their operation says otherwise. Don’t get me wrong, I believe that dealers want to improve their business by changing the way they trade for and buy used inventory but what is obvious is most dealers don’t know where to start in order to do a better job.
As you read this, please understand that I believe that brick and mortar auctions will continue to play some role in our industry for quite some time. That said, the fact is, the units dealers need and that consumers want, simply don’t reside at the auction anymore. The 3-6-year-old, fast-turn, higher margin units that dealers are looking for are right in their own backyard. Customers are driving them, they are in your service department, they are in your community… not at an auction. Obviously, we all score a big win or two at an auction often enough to encourage us to go back and try to recreate that success, but the days of building a business around finding the truckload of gems at the local sale are well behind us.
The people in your PMA are driving the units you want, but you don’t get those cars as often as you would like because consumers now have more options than ever before to dispose of their trade-in before they get to the dealership. There are multiple “alternative sales channels” available to consumers now and there are almost certainly more to come.
These “alternative sales channels” (i.e. Carvana®, Vroom®, CarMax®, online sales channels, etc.) are simply taking advantage of our reluctance to admit the truth. The truth is that consumers want an easier path. It is not about the money; it is about the ease of process. These “alternative sales channels” have learned how to appear less intimidating and therefore more approachable to the average consumer—and as a result, they are winning over consumers and taking the trades you used to rely on. Make no mistake, they don’t pay more for the trades, their process isn’t somehow magically painless, and yes, they advertise on the same internet that you do! They’ve simply learned how and when to give the customer the information they want to appear easier to do business with.
The result is that traditional dealers are being largely cut out of the most profitable source of pre-owned inventory. If you are like most dealers, that means your used car lot isn’t pulling the weight it used to on your P&L, in your reinsurance companies, in your finance departments, and so on.
This combined with the continuing margin compression on new cars doesn’t paint a very rosy picture for the future of dealers who don’t have an active plan to acknowledge the reality of the situation and embrace modern consumer shopping methods. I say it to dealers every day… “It is easier than you think. Try selling them a car the way they WANT to buy one and watch how easy it gets”.
I have lived by one very important rule in my dealerships over the past 10 or so years: if we appraise more cars, we will sell more cars. It is that simple. Dealers that encourage and reward activity in the appraisal lane (in store and online) will grow their business. You can’t trade for 100 cars without selling 100 cars. And the 100 trade-ins fuel your service business, parts business, finance business, reinsurance companies, etc.
Sourcing effectively is the most responsible area for astute GMs and DPs to focus on in today’s dealerships. In order to change the way your store sources pre-owned inventory, your leadership team needs to change the way they view the business. For instance, do your sales meetings, pay plans, incentives, performance metrics, training sessions, etc. send the message to your team that you want them to send? If buying cars and increasing the trade volume is truly important to you, it must also be apparent to your team.
Trade-In Valet is the most robust trade in engagement platform in the business today. With Trade-In Valet, we can help with every element of the sourcing equation. From making your dealership more approachable to the average consumer, to our guaranteed trade program, Trade-In Valet drives your new and used car lead volume, eliminates time spent and prospects lost through sight unseen appraisals and improves your show rates, trade volume, turn, and PRU. Now that we have been acquired by Affinitiv, we have added new features such as data mining and more in-depth reporting to the platform. We now have an incredible platform that others simply can’t replicate. It gives us a real advantage by combining several tools in one and our dealers benefit from it tremendously.
Dealers who want to source more profitable units, increase gross, turn times, ROI, and CSI can learn more about Trade-In Valet by viewing our CBT News Interview and NADA update videos, or heading to www.tradeinvalet.com.
Questions/Comments? Mike can be reached at MDodd@affinitiv.com.
Business Owner, Trade-In Valet
Insights | January 05, 2021