The final quarter of 2022 was a pivotal time during which dealers could either give in to the disappointment of unfavorable market conditions or look for opportunities to improve. Which approach did your dealership take, and how did the year round out for you? Regardless of how you answer those questions, you’re surely feeling a new wave of uncertainty at the start of 2023. Even though retail prices are falling, inflation and higher interest rates have slowed down sales. Again, this trend might tempt you to throw up your hands and resign yourself to low numbers this year — but at vAuto, we encourage you to dig in and strive to beat the odds. Because the truth is, we know it’s possible. We’ve seen it happen.
That’s why we’ve compiled key takeaways from recent conversations with today’s most successful dealers about how they’re using their automotive inventory software to get ahead. If you’re looking to make the new year fiscally brighter in every way you can, take their advice to heart.
- Embrace the Variable Method of Inventory Management
Top-performing dealers have moved beyond the Velocity Method of Management because they’ve realized that selling cars as fast as possible isn’t always the best for a dealership’s profitability. Every vehicle and every market calls for a unique approach, and we can expect even more variability in the year ahead. That’s because we’re finally seeing more new vehicles filling dealer lots — and, among those vehicles, a higher days supply of the brands that have higher average listing prices. As a result, some OEMs will probably start putting incentives on their 2023 model cars in the months ahead, which will drive down the values of recent-year models for those brands. It all adds up to even more variability in the already fragmented used vehicle market in which we’ve seen depreciation and retail prices moving at different rates for different vehicles.
It's clear that managing all of your inventory in the same way will not yield the best results. This year, your profitability really does depend on how well you consider all the variables about a vehicle — including its ROI and profit potential in the current market — when making pricing decisions. This Variable Management approach to inventory will be key to your success. And vAuto offers the industry’s only Variable Management dealership software solution: ProfitTime® GPS.
- Adjust Your Asking Prices Every Day
Variable Management requires a high level of pricing discipline. You really should check the market on a daily basis and adjust your asking prices according to current conditions. If you do this, you’ll end up selling high-risk vehicles faster and with a lower ROI — and you’ll sell your low-risk vehicles slower with a higher ROI. And with today’s automotive inventory software, you can easily tell the difference between high- and low-risk vehicles. Just stick to the system’s pricing recommendations and keep an eye on the market.
- Optimize Your Inventory
The top-performing dealers also use their automotive software to help them keep their inventory at the right level and with the right mix of vehicles for their market. In the fall we saw that most dealers across the United States had a high days supply of used vehicles and that most of these vehicles were valued at $35,000 or more. But the most successful dealers were the ones who maintained a much lower days supply and filled their lot with vehicles valued well below that price — between $15,000 and $30,000. The same holds true today. Inflation and higher interest rates are making it harder for people to buy high-priced vehicles. Consumers are clearly looking for more affordable options. If you use your dealership software to help you fill your lot with vehicles that are priced right, you’ll sell them faster and make gross while your competitors are stuck waiting for their vehicles to move.
- Use Data to Connect With Your Customers
Today’s consumers have more data at their fingertips than ever before — and top-performing dealers embrace this fact and use it to their advantage by bolstering the customer relationship. These days, you have to assume that when a shopper walks into your showroom hoping to trade in a vehicle, they already know its value because they’ve checked sources like Kelley Blue Book® Instant Cash Offer℠, Vroom, CarMax and Carvana. They aren’t looking to you to educate them; they need you to acknowledge that they’re already informed and then bring a personal touch to the trade-in and/or purchasing experience to help move the process along. Being transparent about the automotive software data you use for appraising and pricing is key to personalizing these conversations. For example, showing your customers a third-party value validates your offer and helps you win more sales.
- Trust Your Automotive Software
No one really knows what’s going to happen in the used vehicle market this year, but we do know that there’s always an opportunity to do better as long as you’ve invested in proven automotive software and you use it the way it was designed to be used. Individual dealer expertise is important, but in these unprecedented times it’s no longer possible to run a successful dealership based on past experience and gut-level decisions. You really do need to trust your dealership software’s recommendations and manage your inventory accordingly. You’ll ultimately end up in a more profitable position.
So, if you haven’t already switched to the Variable Method of inventory management, now is the time. Adjust your asking prices every day based on actual market conditions, and optimize your inventory to include a lower days supply of vehicles valued at prices your customers can actually afford. And then when those customers come to your showroom, be transparent with them — they’ll appreciate your honesty.
If you have questions about how to succeed in 2023, please just contact us. Our team will be happy to help.