I have seen a lot of commentary lately about trade appraisals – it must be the cornerstone of most dealerships’ acquisition strategies in this low inventory market. There’s been a huge shift in the auto industry in how we think about trade-ins, appraisals and customer interactions. (If you’re interested in how you can leverage those mindset changes to outsmart disruptors, check out this blog.)
the customers coming into your dealership have checked the value of their car against multiple sources and come in with a number in mind (whether or not they read the fine print). When you go to appraise the vehicle with the customer, there is certainly less friction if you’re both working from a trusted 3rd party source and Kelley Blue Book comes to mind.
There is a report that can be created in vAuto where every unit’s cost in your inventory from your DMS (which is after reconditioning and all other costs are applied) is compared to Kelley Blue Book Excellent Condition trade-in value. I have seen dealers’ current inventory accumulative cost exceed the KBB value by tens of thousands of dollars. Don’t snicker, call your vAuto Performance Manager or even if you are using another inventory management system; have them add the report to your view.
If Kelley Blue Book “Excellent” trade-in value is fair and reasonable even to a marginally maintained vehicle, why fight it? Hear me out.
Here’s your appraisal talk track with consumersWe are committed to providing market-based appraisals and use current market data to arrive at our valuations. We use several sources which are probably those available to you. Have you had an opportunity to review values at one or more of the online sources? Well, we use Kelley Blue Book, the trusted source.”
If you ask, “what condition box did you check when it asked you?” Most will say “excellent” and completely ignore the note underneath that says this is “Top 3% of the cars we value, looks new and is in excellent mechanical condition”. Well, that’s just not fair to dealers, is it?
A quick example. Let’s take a 2014 Subaru Forester with 160,000 miles on it. KBB Excellent is $8,500 and Good is $6,000 and the customer is expecting top dollar. They heard inventory is tight and used car values are through the roof. They know because “they it on the radio” as one of my old car dog pals used to advertise. So, you present a reasonable assessment in your mind of KBB “Good” trade-in value. In all fairness, the KBB site says, “has some repairable cosmetic defects and is free of mechanical problems”. The problem is you just told the customer his baby was ugly, and the news is contradicting you by saying every baby is precious in this market.
Meet them where they are and read through the full KBB “Excellent” disclaimer: “This car looks new and is in excellent mechanical condition. It has never had paint or bodywork and has an interior and body free of wear and visible defects. The car is rust-free and does not need reconditioning. Its clean engine compartment is free of fluid leaks. It also has a clean title history, has complete and verifiable service records”. If that description doesn’t match the Forester, let’s proceed to the inspection with the customer.
Walk them through the cost to recondition the vehicle. For the Forester, this is the breakdown and estimated costs (I know because this car is in my driveway as I write this):
Tires - $1,000
Paint the hood and front bumper - $600
New front brakes - $600
Replace driver’s seat cover - $600
Full detail – $250
Don’t be surprised when the customer throws an objection. For example, the customer says the last time they priced out new tires, they were $750. Go with their figure. The adjusted value is then $5,700 (we are now $300 less than good condition). With this approach, we’re rationally negotiating the reconditioning items, not trying to overcome their “perception” of several thousand dollars because you walked out with the unspeakable “good” or even “fair” condition trade-in value.
what’s the takeaway of this story? We car folks like to work from cost up. Consumers understand working from retail backwards because they like a good discount. Give the above approach a shot if your current process lacks the transparency you need to compete with the disruptors and your look to book is not where it needs to be. That's how you may be able to win more trades and get back to filling your lot.