Are you finding it difficult to stock enough of the high-gross vehicles you need? You’re not alone. A strong demand for used inventory is putting the squeeze on dealerships—driving up auction prices and pressuring profit margins.
The National Automobile Dealers Association (NADA) is estimating that used car supply will fall 7 percent in 2012, as compared to 2011. And if you were in the auction lanes last year, you already know that the pickings were slim to begin with. So what’s a dealer to do?
The key strategy for acquisition success in 2012 is to move past the auctions—where there are too many bidders and not enough cars—and find fresh, little-used techniques to stock more of the cars you need.
Turn the service lane into an auction lane
The first untapped resource for acquiring quality pre-owned inventory at a great price is in your own backyard: your service department.
How many service customers come through your service lane in a given month? How many of those cars would you love to have on your lot? These are, essentially, private-party listings to which you have easy, immediate, face-to-face access. Several smart dealerships around the country are using this strategy with huge success.
But to employ this technique, dealers need the right tools: inventory management systems that not only give them the data to determine whether to make an offer on a particular car (and how much to offer), but also provide easy-to-create, professional offer forms.
Think like CarMax
CarMax is known for buying consumer vehicles right off the street. It’s a niche acquisition strategy that’s paid off big for the company.
While many car owners who use the for-sale-by-owner strategy initially hold out for near-retail money, most quickly tire of several weeks of showing the car and haggling. Once they’ve reached this threshold, they’re more willing to accept a wholesale price. CarMax has simply taken advantage of this reality.
In its 2011 fiscal year, CarMax retailed 396,181 used vehicles and 263,061 wholesale vehicles. That’s an average of 311 retail units per month per store. But without its smart, unique consumer-buying program, CarMax wouldn’t have the inventory to achieve this volume.
It’s not exactly a simple strategy to employ. Anyone can buy cars from consumers, but the key to success is having a solid process. Advertising this program to your potential customers is a big part of the puzzle.
When you consider that 77 percent of customers choose their dealership through online advertising or a referral from a friend or family member, it becomes clear that traditional advertising (print, radio, television, etc.) has lost a lot of its value. So why not dedicate some or all of your budget for these less effective media to marketing your own consumer buying program? Put signs in your dealership, hang tags in service cars or email your database, to name a few examples. Get the word out that consumers have the cars that you want to buy.
Go straight to the source
While the CarMax and service-department acquisition strategies can be extremely successful, you don’t necessarily have to wait for the customers to come to you. Have you checked out private-party listing data lately? You probably filter this out when you go to AutoTrader or Cars.com—but you may be missing a big opportunity.
Many of the cars you desperately need in your inventory are for sale down the street by consumers. A recent search for a retail-worthy 2005 or newer Chevy product in Chicago, for example, yielded more than 500 listings on AutoTrader, Cars.com and Craigslist. If your dealership could capture just one of those per week, with a resulting gross profit of $2,000, you could pull in an additional $96,000 per year.
As mentioned previously, most consumers are only willing to hold out for retail-level offers for so long—and this is one of the reasons why so many of them eventually sell their cars to CarMax. If you see a listing you’re interested in, call the consumer right away and present a formal offer to purchase her car at wholesale prices. This may require some additional follow-up in the coming weeks, but if and when the consumer does get tired of the for-sale-by-owner rigmarole, they’ll come to you before seeking out any other dealership.
Pursuing vehicles directly through the consumer channel is a process, but the gains are substantial. Regardless of whether a lead results in an acquisition or trade-in, you’ll be building your contact database—and your relationships with potential future customers.
For the most part, dealerships aren’t fishing in these pools—making it easier for the dealerships that do to corner the market and reap the biggest benefits. Are you ready to make these strategies work for you?