I’ve long been a fan of doing things as efficiently and effectively as possible — with a particular focus on applying these principles to tough dealership management problems.
Of late, the top used vehicle challenge has been sourcing the right vehicles for a dealership and its marketplace. I speak daily with used vehicle managers who feel like a dog chasing its tail — an awful lot of energy and effort, with little to show for it.
Let’s address the sourcing problem head-on. First, a caveat: There’s a direct correlation between the severity of a sourcing problem at a dealership and the degree to which its used vehicle manager deploys technology and tools to help find and source the vehicles. Likewise, sourcing vehicles is more challenging at dealerships where used vehicle managers fail to regard their inventory management as “provisioning,” or the accounting of market supply, demand and sales dynamics when they opt to acquire vehicles.
Typically, the most sourcing-challenged used vehicle managers are doing “more of the same” — which often comes down to going more frequently to the same auctions looking for largely the same vehicles, or deploying more buyers at a wider array of physical auctions.
Yet, they still come up dry. Why? It’s because some of the more desirable vehicles simply don’t roll through conventional auctions anymore. The online wholesale marketplace is increasingly the “go to” venue to efficiently find and source vehicles, not physical auctions.
I’m not suggesting physical auctions don’t merit time and attention. They do. It’s just that used vehicle managers who rely most on physical auctions — and especially those who dismiss today’s technology and tools — are making sourcing more difficult than it needs to be.
So, part of the solution for today’s sourcing problem absolutely requires the use of technology and tools to be effective and efficient at acquiring vehicles. The rest of the solution flows from understanding and adopting a “provisioning” mindset.
The Three “W’s” of Provisioning
Used vehicle managers who take a “provisioning” mentality have a precise vision for the vehicles they should pursue and the wholesale prices they should pay. This gives them a razor-sharp focus as they use technology and tools to efficiently source the vehicles at online and other auctions.
There are three basic questions that provide the foundation for “provisioning”:
What are the “right” cars for my store?
As I’ve written before, the possibilities here should not be limited by the biases and emotions of a used vehicle manager. If you’re a Ford dealer, there’s no reason not to sell Buicks or Hyundais if they make sense for your market. Today, it’s essential to know every vehicle that makes sense, down to the make, model, trim and options configurations, and pick those that are “right” for you. This means having a firm handle on real-time data on all the vehicles consumers are shopping for and buying in your market area, not just at your dealership. Used vehicle managers shouldn’t do this by instinct — especially when today’s technology efficiently serves up the sure-fire winners for a store.
What should I pay for the “right” cars?
The answer to this question flows from knowing: a) the retail price a dealership can reasonably expect to receive for the vehicle; b) the gross profit objective they’d like to meet when they sell to a customer; and, c) the likely costs associated with reconditioning, transportation, time in inventory and other variables. Example: If I know I can sell a 2008 Chevy Tahoe for $12,500, and I expect to make $1,500 in gross profit and will likely pay $700 in reconditioning/transportation and other costs, I know I shouldn’t pay more than $10,300 for the unit at auction. It’s pretty simple, but tradition-minded used vehicle managers typically don’t think this way, largely because they didn’t need to when they were coming up in the business. Today, however, it’s a necessity to view every potential wholesale acquisition from a retail perspective and reverse-engineer the deal to derive an astute wholesale purchase price. Tech-savvy used vehicle managers know this, of course, and it’s this data that helps them “know when to hold them, and know when to fold them.”
Where can I get the “right” cars?
This is where today’s technology really shines and provides unprecedented assistance to make vehicle sourcing easier. Imagine this: It’s noon and the used vehicle manager’s out to lunch. However, earlier in the day, he/she instructed the store’s inventory management system to find X vehicle at Y price. The system scours the run sheets at online and physical auctions, finds the unit at the “right” condition and price parameters, makes the purchase and initiates transportation to a dealership. When the used vehicle manager returns, the vehicle’s “on the way” and he/she can move on to the next task. This is a far cry from a used vehicle manager, coming off a half-day at the auction, telling his dealer, “there’s nothing to buy.”
In summary, I believe today’s used vehicle sourcing challenge is both real and relative. To be sure, more dealers are focusing on used vehicles, making the “right” vehicles more difficult to acquire. But the degree of difficulty is relative — and it really depends on whether a used vehicle manager embraces available technology and tools and a “provisioning” mindset to make the job easier.