By Tim Scoutelas, Director of Strategic Accounts, MAX Digital
The used car market is ripe for dealers: Vehicle prices are rising, demand is growing, and days on the lot is dropping. According to Edmunds Q1 2019 Used Vehicle Report, pre-owned vehicle prices have increased by 17.4 percent in the last five years, now surpassing $20,000 per used vehicle. Compare that to the average new car price of $36,000, used cars represent a significant savings for customers. Monthly payments on used cars are 31 percent lower than new, according to Jonathan Banks of J.D. Power. And with low miles, late-model vehicles, and additional features/options, buying used no longer represents a compromise over buying new.
Used cars are also consistently more profitable. With more margin to be gained, dealers are looking for ways to increase their used car inventory. Savvy dealers are striving to get closer to a 1:1 used car to new car ratio. NADA data shows the 2018 average is .80 used cars to new. Luxury brands show the highest ratio at .90 used to new— a clear shift from .68 in 2014.
It’s evident that dealers need to source more used inventory, the question is, how?
Dealers continue to head to the auctions, week in and week out, spending far too much time and effort on acquiring vehicles. The fact of the matter is, going to auctions may not be your best bet. When you factor in auction fees, transportation costs, plus bidding against other dealers, vehicles sourced from auctions leave little to no margin.
The consumer-sourced trade in comparison is the most profitable source of inventory for dealerships and can be a driving force for overall success in today’s digital environment.
So, how can you capture more consumer sourced trades? Consider a customer buying center. A buy center is a cost-effective way to acquire the highest-grossing and fastest-turning inventory, while driving local traffic to your dealership. It builds the customer relationship for the future. As an added benefit, you know these vehicles better – with the full vehicle history straight from the consumer and the opportunity to inspect it yourself. That’s a win all around.
Carvana was quoted in Automotive News as saying, customer-sourced cars can generate an average of $500-1000 more profit per unit than those acquired at auction. We agree and see similar numbers when our dealerships are using the collaborative process. A buying center offers a great path to ramping up your inbound trades and helps to bump up your used-to-new-car ratio, while bringing profit along for the ride.
Buy Center Must-Haves
Effectively running a customer buying center will require some nontraditional thinking. Dealers may find themselves in the uncomfortable position of having to make offers on vehicles they may not be prepared to manage. Here are several ways to ensure a successful customer buy center:
- A common goal: Dealers must ensure their hiring and training are aligned with the goal of making positive customer interactions first and foremost, not just selling vehicles. It is a long-term relationship play.
- Commitment to
process: Create a documented process that makes it quick and easy to give a cash offer to every customer on the spot. Not every offer will be equally attractive, but having a transparent, fair process makes every offer valuable in building the relationship.
- Staff up: Ensure you have dedicated, trained employees who can effectively manage the buying center. Be open to skills transfer from service-oriented roles; people who are successful here may come from areas beyond sales in your organization.
- Focus training on new skills: Get office staff comfortable with the check-printing and signing process. This is a make or break for a successful program. Time your process and role play so that the full team understands the value of executing with 100% accuracy while moving quickly.
- Make it collaborative: Walk around the car with the customer and agree on its condition together. When customers are included in the appraisal, they see the logic in how the car is priced, making it a smoother process for everyone.
- Integrate technology: Technology is invaluable in the appraisal process for guiding a consistent high-quality process. Technology can eliminate paperwork and give dealers instant access to information. Using a mobile phone or tablet to enable customers to hold the power and rate their own vehicle components as an input to the trade, promotes buy-in on the value. When you can provide facts and context to customers, such as third-party values and market comparisons, it prevents questioning and makes customers feel more confident.
- Make it quick and easy: With a defined and collaborative processes, customers should be able to get in and out of the buy center in under an hour. Not there yet? See training notes above, get out your stopwatch and make adjustments to each segment of the process to reduce waiting. Remember, the more positive the interaction, the more likely they will come back and recommend to a friend.
- Marketing: To drive traffic, get the word out to consumers about your buy center. Explain your process and let customers know what to expect, e.g. ‘Experience a new way to sell your car in under an hour.’ or ‘We’ll buy your car, whether you buy a car from us or not.’ Get known for the cars you sell best. You can even use social media to target the vehicles that are most valuable to you.
- Send to auction: If the sourced vehicles aren’t a good fit or sit on your lot for 25 days, then send them to auction. Bottom line, there’s always a place for every car that comes through your dealership.
Not Ready For a Buying Center Approach? Tap Into the Service Lane
For dealers who may not be ready to commit to a customer buying center, consider sourcing cars from the service lane. Dealers can find customers facing large repair bills on vehicles with low miles in the service lane. Target vehicle inventory that’s in high demand and low supply, and customers who need an upgrade. Sales consultants can approach these customers about upgrading their vehicle with the same payment or attractive upgrade options that aren’t much more.
The consumer-sourced trade is the most profitable source of inventory for your dealership. Savvy used car departments will optimize every opportunity to source this inventory, especially those right at their doorstep. The trade-in process, while executed and managed by the pre-owned team, is an essential part of the new car transaction, as well. Dealers who focus on a buying approach that is collaborative, transparent and customer-friendly can see increased traffic to the store, more retail sales, and increased profits across their dealership.
About the Author
Tim Scoutelas is Director of Strategic Accounts at MAX Digital. Tim has 24 years of experience in the auto industry, including his role as a Car Purchasing Manager at CarMax where he appraised 16,000+ cars.