Every vehicle you acquire has the potential to impact your bottom line. Small appraisal and acquisition missteps can make it harder to value vehicles accurately, stock the right inventory, and protect profitability. Even experienced dealers can run into issues that lead to costly mistakes.
Here are five common appraisal and acquisition issues to watch for and how addressing them can improve your acquisition performance and profitability.
1. Misunderstanding Market Day Supply
Market day supply is more than counting how many vehicles are currently available. It’s more than estimating how many days it will take to sell a vehicle. Market day supply gives you a live view of how long it would take to deplete the current supply of a vehicle, based on a rolling 45-day supply, if no new inventory entered the market.
This more nuanced view of market day supply is a mouthful, but it gives you an important indicator of supply, demand, and potential depreciation risk. For your dealership, it can also help put an appraisal into context.
Make sure that your team understands this added context, so you can make more informed decisions about which vehicles to buy, how much to pay for them, and how aggressively to price them once they reach your lot.
2. Missing Reconditioning Issues
Reconditioning costs can have a major impact on a vehicle’s profitability, which makes accurately identifying them during appraisal all the more critical. Yet 50% of appraisals in vAuto use the default reconditioning value, according to vAuto Performance Manager Jeremy Hale. And 39% of appraisals miss reconditioning costs by $1,000.
Those misses can add up fast. When the estimate doesn’t reflect the actual work a vehicle needs, you can overvalue a vehicle and underestimate the costs required to get it frontline-ready. Additional repairs or bodywork can also delay the vehicle from reaching your lot and tie up capital longer than expected.
Rather than relying on a generic estimate, inspect the vehicle, identify the work it needs, and itemize every cost. Jeremy recommends getting average reconditioning estimates within $200 of the actual cost. These more accurate estimates can help your team make better acquisition decisions and avoid surprises that can hurt profitability or cost you a deal.
3. Not Enough Finalized Appraisals
Your appraisal data is only as useful as the data you’re actually capturing. Incomplete or unfinalized appraisals can distort important metrics and make it harder to understand what’s really happening.
For example, if your dealership has hundreds of appraisals sitting in process, your look-to-book rate may appear significantly better than it actually is because those incomplete appraisals aren’t being included. Over time, incomplete appraisals can also disappear from the system, taking potentially valuable data with them.
Finalizing appraisals gives your dealership a more accurate picture of performance. It also creates the data you need to identify trends, evaluate appraisal sources, and make better acquisition decisions.
Treating finalized appraisals as a non-negotiable part of the process can help ensure the data you’re using to make decisions reflects what’s actually happening in your dealership.
4. Lack of Source Attribution
Knowing where an appraisal comes from matters. Your dealership may handle an appraisal differently depending on whether the customer is standing in the showroom, responding to a sight-unseen offer, or coming through the service drive. Without source attribution, it’s difficult to see which channels are producing opportunities and which processes may need more attention.
Consistently capturing appraisal sources also gives you more useful data to evaluate your acquisition strategy. You can look at metrics such as profitability and average days to sell by source to see which channels are producing the most valuable opportunities.
5. An Outdated or Incomplete Acquisition Strategy
Your acquisition strategy shouldn’t be something you set up once and forget. Your sales and inventory needs can change over time, and seasonality can affect which vehicles you need and when you need them.
By using sales and inventory data, you can identify gaps and areas of overstock. If your dealership is selling a particular vehicle faster than you’re replacing it, that may signal an opportunity to pursue more through trades, direct acquisition, or other sources.
This information can also help your team be more intentional when appraising vehicles. If you’re already overstocked with a particular vehicle, you may want to be more selective about adding additional inventory there.
The goal isn’t necessarily to buy more vehicles. It’s to know which vehicles you need, where you need them and where your acquisition efforts are most likely to pay off.
Make Every Appraisal Count
How you handle appraisals and acquisitions can have a significant impact on your inventory and profitability.
By addressing these five issues, you can give your team better information to make smarter acquisition decisions, prioritize the right opportunities, and put more of the right inventory on your lot.
Want to hear more about appraisal and acquisition opportunities that could help you win more deals? Watch our video to get Jeremy Hale’s insights on these common appraisal and acquisition issues and more strategies you can use to improve your processes.