Old habits are definitely hard to break, especially for car dealers.
For one thing, dealers have had a lot of good, highly profitable years managing their businesses the same way as prior generations did. In addition, dealers typically resist change, just like everyone else.
But I’d like to make the case that some habits in used vehicles are doing more damage than good for the dealers who still follow the same playbook as their fathers. The following are what I would consider seven habits that dealers must break if they want to thrive in today’s morechallenging retail environment for used vehicles:
- Keeping cars past their profit prime. You’ll still find dealers who hang on to used vehicles because they either say, “we can’t replace them for what they’ve got in them,” or “we’ll find a buyer to pay the gross we need on a unit.” Both lines of tradition-worn thinking miss the mark in today’s more margin-compressed and time-sensitive market. Today, the maximum retail timeframe for any used vehicle should be 45 days; vehicles that sit longer have largely lost their ability to deliver a sufficient return to make the investment worthwhile.
- Allowing service to “take its time” with reconditioning. Jealers cannot “turn and earn” their used vehicle inventories if the service department takes more than an average of three days to recondition the cars. Dealers must exercise “creative disruption” as they get service directors to understand that their best customer can, and should be, the used vehicle department.
- Putting “prayer”-like pricing on vehicles. While this habit is less prevalent than it used to be, there are still a large number of dealers who reflexively “go for gross” when they price every used vehicle. Unfortunately, today’s consumers are too market-smart for this traditional pricing trick to work. The new market rule: Price every vehicle where the market says it needs to be, not where you believe it should be.
- Relying on local auctions. More and more, dealers are relying less on local auctions to feed their inventories, opting for online sales to expand selection and reach. It’s tough for veteran used vehicle managers to break the habit of weekly trips to the local auction, but they’ll find more of the “right” cars as they cast a wider, e-enabled net for acquisitions.
- Over-allowing on appraisals. There’s a time and place to “step up” on a trade-in to make a new vehicle deal. But such decisions should be made case-by-case, rather than as a matter of course. Today’s margins on used vehicles are too lean to over-allow on a trade-in without good reason. Dealers who over-allow regularly should not complain about not making enough gross profit when they retail the cars.
- Stocking up to expand selection or sales. When used vehicle sales are good, dealers get hungry to acquire more cars. The end result: Too much inventory that doesn’t sell within the 45-day retail timeline. There are three rules that should guide decisions to expand used vehicle inventory — you must be calculated and careful; you must be committed to buy the “right” cars, based on the market; and you must have the capacity to recondition and retail the extra inventory within the 45-day timeline.
- Treating every customer as a “fresh up.” This habit stems from sales processes designed for yesterday’s dealership — where customers didn’t have the Internet to shop your used vehicle inventory before visiting the store. Today, the best dealers greet the majority of showroom customers with a profile in hand, knowing at least a little about personal preferences and vehicle choices. Customers appreciate these one-to-one connections, and the trust that develops typically benefits the dealer at the close of a deal and beyond.
Each of these seven habits poses distinct, ripple-effect challenges as dealers try to break them. For example, if a used vehicle manager refuses to go beyond local auctions to source inventory, a dealer may well need to face a difficult choice about who’s really able to take the department to the next level.
In addition, breaking long-established habits in the car business isn’t any easier than losing weight or quitting smoking. Initially, there’s nothing satisfying at all about the decision. Over time, however, you feel better and see tangible results that affirm you made the right call.