For the past few months, I’ve been monitoring dealer used vehicle inventories through vAuto’s new Provision® Suite, an inventory management engine that assigns letter grades to prospective vehicles a dealer might acquire.
An eye-opening finding: It’s very rare for the “perfect used car” (or one that has an “A” grade or better) to appear on a dealer’s recommended buy list. Instead, the vast majority of recommended vehicles receive B- or C-level grades.
At first, I found this disturbing. How is it possible that, at any given time in any given market, there isn’t a perfect used car out there for a dealer to acquire?
The answer to this question came quickly as I more closely examined the vehicles that appeared on the recommended buy lists: Virtually every vehicle had at least one or more issues that might be problematic for dealers — whether it’s low demand, high supply, an oddball equipment / trim configuration, high mileage, or a lower-than-average potential to achieve a dealer’s goals for profitability.
In this way, used vehicles are like people — nobody’s perfect and each of us carries a mix of strengths and weaknesses that make us unique individuals.
The key, then, is for dealers and used vehicle managers to be cognizant that every vehicle, no matter how seemingly perfect it might be, poses a potential “gotcha!” risk at retail. Likewise, each vehicle likely has a strength that a dealer can leverage to his or her advantage.
Some dealers are identifying this mix of individual vehicle strengths and weaknesses up front — before they acquire a unit — and creating vehicle-specific merchandising plans to mitigate a unit’s potential risks and leverage its strengths in their merchandising plans.
Here’s a quick peek inside their playbooks to help dealers contend with the dearth of the perfect used car:
Establish a triage process for each vehicle.
Just as medical professionals assess and prioritize the most serious conditions a patient exhibits upon arrival, dealers should conduct similar assessments on vehicles they might acquire. The effectiveness of this triage depends largely on its thoroughness and scope—in today’s market, it should definitely be more comprehensive than a quick eyeball for mileage, condition and color. Beyond these physical attributes, dealers should ask market-focused questions as they perform this triage include: What’s the current supply and likely demand for this vehicle? How many similar or comparable vehicles have sold in the past 30 days in the market? How much are dealers asking for this vehicle at retail? And how much are they actually getting? What are the likely reconditioning costs we’d need to incur to ready the unit for retail? What’s the absolute cap on how much I can pay to acquire / recondition the vehicle and achieve my gross profit goals?
This type of triage is extremely instructive and valuable for dealers as it a) identifies a vehicle’s strengths and weaknesses and b) provides guidance for how a dealership can merchandise the vehicle once it’s acquired.
Map the vehicle’s merchandising mission.
We all know the basic mission for any used vehicle is to sell it quickly and generate gross profits sufficient to meet a dealership’s goals. However, in today’s Internet-driven marketplace, there are many more moving parts that dealers need to account for as they decide how they will retail a vehicle should they choose to acquire it. This mission-setting step follows the initial triage and encompasses both online and offline elements: Does this unit, because of market supply/demand dynamics, require extra online visibility (e.g., juiced-up descriptions or feature placement) to stand out against competing vehicles? Do I need to look for profit-building add-ons such as accessories or certification to enhance the unit’s profitability? How aggressive should I make my initial asking price, given the unit’s acquisition / reconditioning costs and the time it takes my team to get the unit posted online?
It’s important to recognize that a vehicle’s mission, at this stage, is more of a guide than a hard and fast action plan. Today’s market is too dynamic and volatile for dealers to say, “This is how I’m going to retail this vehicle” and stop there. In this way, dealers must think like airplane pilots who carefully plan each flight with the understanding that they’ll need to change their flight plans as conditions change.
There are three key benefits to using this triage / mission-setting approach:
- It acknowledges that the “perfect used car” is more myth than reality, and provides a pathway to account for and address each vehicle’s strengths and weaknesses early in the acquisition process.
- It goes a long way to minimizing “gotcha!” surprises that often result in wholesale losses.
- It fits snugly with an age-old business management axiom: “If you fail to plan, you plan to fail.”