By Majd Saboura, Senior Director of Offsite Solutions, Manheim
Franchise dealers are taking in more off-brand trades than ever before — and that trend is likely to continue. In the past, a franchise dealer’s used vehicle mix would typically be around 80 percent on brand and 20 percent off, but that split has tipped closer to 50/50 in recent years.
Fueled by the combination of weaker brand loyalty among consumers and an increasing number of unique vehicle models on the market, this trend puts dealers in the challenging place of having to make the right offers on increasingly unfamiliar vehicles. And when adding shrinking margins, this can put dealers in an especially tough spot — needing to make an offer that can both seal the retail deal while protecting their margins.
Hands down, the biggest mistake I’ve seen dealers make when valuing off-brand trades is going only on prior history and not understanding the complete retail and wholesale picture of the vehicle. The best approach is to look at the trade-in’s retail and wholesale potential before making any decisions.
Below are three tips I encourage every dealer to follow:
1. Understand the demand in your market. Sure, you’ve had a lot of success selling sedans in the past, but what if there’s an oversaturation of those in your area? What if shoppers are looking for SUVs instead? Try not to rely on the past — or your gut — in isolation. There are tons of tools out there that can help you understand the demand in your market.
2. Know the wholesale value of the vehicle — whether you plan to wholesale it or not. Getting into a vehicle for too much money makes things harder down the line. To protect against this, check the wholesale vehicle value when evaluating a trade-in. Many tools can give you wholesale valuations, including Manheim Express, which gives you a guaranteed offer that you can redeem if the vehicle doesn’t sell within 48 hours of being posted through the app.
3. Let the decision to retail or wholesale determine how aggressive you are on the trade. Once you have a solid understanding of market demand and a firm wholesale offer in hand, you can then decide whether you want to retail or wholesale the vehicle. If demand shows retailing is the way to go, you can offer a little more for the trade since there are other profit opportunities in retailing. If you plan to wholesale it, you may want to get a little less aggressive on the trade value.
Ultimately, there’s a delicate balance in valuing trade-ins. If you offer too little, the shopper could walk. If you offer too much, your profitability could take a hit. By looking at both the wholesale and retail picture of a vehicle in real-time, you can make much more informed — and profitable — trade-in decisions.
About the Author
Majd Saboura is Senior Director of Offsite Solutions at Manheim. He has more than a decade of experience helping dealers realize greater profits by implementing informed wholesale and retail strategies.