ProfitTime in Practice: Clarity Drives More Investment Value-Based Appraisals

Since the dawn of the used car business, it’s always been true that the retail fate and fortune of every used vehicle starts with the appraisal.

This is the moment, whether it’s an auction or trade-in unit, that gives dealers their sole opportunity to size up a vehicle, determine whether it’s a good fit for your inventory and market, and establish the vehicle’s money-making potential, based on its purchase price.

It’s also true that, over the years, appraisals have shifted from an art, to a blend of art and science.

At one time, appraisals were all about art. Appraisers got a sense for the car, and came up with an acceptable number, sometimes after consulting book values, sometimes not.

In more recent years, science has entered the appraisal process. Appraisers have tools that help them consider real-time market metrics, such as Market Days Supply, Cost to Market and Price to Market metrics, and competitive sets, as they value a vehicle.

But even with the additional data and tools, there’s a wild card at work with auction and trade-in appraisals. It’s the emotion, and personal preferences, of the appraisers themselves.

The emotion may come from really liking a car, responding to pressure from the desk to make a deal or getting angry at being outbid at auction. Whatever the case, the emotion isn’t good for business.

Too often, the emotion results in appraisers making mistakes. They put too much in the wrong car, and too little into the right cars. They tweak appraisals to fit the deal at hand, not the car that’s in front of them. Worst of all, the mistakes often live on, as managers try to make up for the appraising shortcomings by pricing the vehicles higher than they should be, given the market.

These are the scenarios that dealers are uncovering as they use Provision ProfitTime to help guide their appraisal process for auction and trade-in vehicles.

ProfitTime tells dealers three important things about every vehicle at appraisal—its market appeal as expressed by an A-F letter grade, a Strategy Action that indicates whether you need the vehicle or don’t, and the vehicle’s investment value based on ProfitTime’s 1-12 scale (1-3, Bronze; 4-6, Silver; 7-9, Gold; 10-12, Platinum).

Dealers say this trifecta of information is helping appraisers make more objective and on-the-money decisions.

“We found who shouldn’t be appraising cars,” says Steve Jackson, used vehicle director for Lansing, Mich.-based Shaheen Chevrolet, which retails around 190 used vehicles a month.

“We determined that maybe we should just have appraisers go in with facts, not emotion,” Jackson continues. “ProfitTime takes the emotion right out of it.”

Jackson says the ProfitTime appraisal application has led to deeper, and more frequent discussions about how they’re appraising vehicles, and why they miss some units. The effort’s paying off.

“The cars I take in, now, we’re at least taking them in right,” he says. “The best thing for me is that on Day 1, right away, I know what I’m going to do with that car and how to price it. It works, and the proof’s in the pudding. Since we’ve been using ProfitTime, our turn on our Bronze vehicles has gone up dramatically.”

Trent Waybright, vice president of pre-owned operations for the six-store Kelley Automotive Group, Fort Wayne, Ind., says ProfitTime is helping his appraisers see vehicles as they are, not what they might want them to be.

“The natural tendency of a manager at the store level, when they’re looking at an appraisal, is to stay away from anything that looks negative,” Waybright says. “Understandably, they want to make the deal. We’re learning that with some vehicles, it just is what it is.”

Waybright adds that more investment-astute appraisals have helped improve the percentages of Silver and Gold vehicles in their inventories. “To me, that’s a result of people in the showrooms buying in. They are putting the right money into the cars,” he says.

I’ve long stated that today’s car business is a game of inches, and success goes to dealers who look for, and pursue, opportunities for incremental advantage.

Based on what I’m hearing from ProfitTime dealers, it seems that there’s at least some incremental advantage waiting, untapped, in the way they appraise auction and trade-in units.

Perhaps best of all, this incremental advantage is now easier to find and address.

Note: In my next ProfitTime in Practice post, we’ll examine why appraisals on auction vehicles, not trade-ins, offer the best opportunity to engineer your inventory’s investment value. 

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