Is your used car department fully optimized for maximum performance and profits? Do you have a disciplined trade-in process? Are you putting the right number on every trade you process? If you answered “yes” to these questions, congratulations! You can stop reading now. Have a great day.
If you answered “no” to any of these questions, or if you’re not sure, then this article is for you.
With today’s prevalent margin compression, a dealership’s used car department is more important than ever. You’re still reading this article which means you, along with most other dealers, are still looking for ways to improve your used car department.
We’re here to help. This article is full of tips and advice o make your used car department run like a well-oiled machine.
Overcoming Challenges in Your Used Car Department
There’s a fundamental lack of transparency in our industry, whether it’s build data from OEMs, communication between dealers, visibility between dealership departments and rooftops, or transparency in dealer to customer interactions.
However, transparency is a critical part of the trade-in process – the first and most important step in the new car purchase process for millions of consumers.
It’s easy to understand why transparency is an elusive thing.
With new cars, we have access to a wealth of information including MSRP, detailed engine and transmission specs, standard equipment and warranty details, fuel economy, and crash test ratings.
With used cars, there are many unknowns with the only exceptions being year, make, model, trim, mileage, and condition information. These factors only scratch the surface of a used car’s true value.
Was the car routinely maintained? How was it driven? What does the vehicle history report reveal? Have you considered the many other factors that can impact value such as color combinations, regional supply and demand, parts costs, repair costs, rebates and incentives, open recalls, mechanical condition, or stop sale factors?
Building transparency in your used car department is critical to improving it. Here’s how to do it.
To Improve Your Used Car Department, Start with Process
Following is a list of ten key questions you need to answer, in detail, in order to implement a better trade-in process and ultimately, an improved used car department.
- What is your standard trade-in process?
- Who is responsible for documenting and managing it?
- How does someone become qualified to evaluate cars?
- How does your process work when your Used Car Manager is unavailable?
- Do you have a network of resources to provide expertise outside your core brand(s)?
- What training does your UCM provide to sales personnel?
- Do you include a detailed overview of your trade-in process in employee manuals?
- Are there enough people trained in valuation to provide redundancy in case of personnel change?
- Do your qualified valuation personnel call cars consistently with each other?
- Do you manage car valuation by the exception or the rule?
The answers to these questions – or the lack thereof – helps you determine just how much improvement your used car department needs. Once you’ve made this determination, now it’s time to optimize your used car operations. Here are six key steps to help you do just that.
Step #1: A Great Trade-In Process Starts with an Accurate Evaluation
As we mentioned earlier, there are many additional factors that impact a car’s value, beyond make/model/trim, year, mileage, and condition. Understanding the nuances of these factors is a great first step in optimizing your process.
First, you must accurately evaluate the vehicle. For example, when it comes to optional equipment, it’s important to correctly asses standard equipment versus expected options such as a sunroof or heated seats on a luxury unit. Bear in mind that some “options” such as navigation aren’t considered optional anymore.
Color combinations are also an important consideration. Depending on the region, interior and exterior colors can have a significant bearing on value, such as increased demand for lighter colored vehicles (e.g. white on tan) compared to darker colored vehicles (e.g. black on gray) in hotter climates.
Next, be sure to pull multiple VHRs instead of just one to get a complete picture. One missed “frame damage” or “salvage brand” could cost you thousands of dollars. Keep in mind, not all accident indicators are the same.
When it comes to the walkaround, get up close and personal. Remember that you cannot adequately inspect the interior and exterior of a vehicle if you’re sitting behind a desk, nor can you adequately inspect the mechanical condition if you don’t turn the car on and shift the gears.
Regarding repair costs, it’s important to note that not all parts and repair costs are created equal. A simple windshield replacement might be a small cost for one vehicle, but wildly expensive for another.
Seasons also have a bearing on valuation. As an example, there is a lack of demand for convertibles in winter months and hence, a lower price.
Just like seasonality, geography has a bearing on price, too. A vehicle that’s in high demand in Houston might very well go bust in Boston.
If you want to improve your used car department, it’s extremely important to correctly evaluate each vehicle on its own merit from the get-go. A used car is only worth what someone is willing to pay for it, and no two used cars are alike.
Step #2: Use a Community Approach to Valuation
With margin compression worse than ever, there is no more room for error in valuation. Yet dealers continue to rely on data that presents great risk.
Regardless of whether you use a black, blue, or yellow book, the fact is that computer generated price ranges ignore vehicles on their own merit. They ignore specific market demands. They represent a risk for core inventory and an even greater risk for non-core units.
You may opt to reach out to your network of buyers to solicit bids, but the fact is that your network isn’t solely dedicated to appraising cars. It’s limited by your list of contacts (or lack thereof), and if there’s no interest in the car and no bidding, the result is misleading diminished value. At best, you’ll get an inconsistent response. At worst, you won’t get a response at all.
A true community approach to valuations, like the one provided by The Appraisal Lane, can help close the error gap.
You can use The Appraisal Lane’s mobile app to scan a vehicle’s VIN, connect with a team of appraisers - experts who understand the factors that impact value across makes, models, and markets - upload photos, answer condition questions, and receive a guaranteed appraisal backed by cash.
The Appraisal Lane works for live trades, with offers arriving in an average of 9 minutes, as well as in-stock trades, aged units, front line, front line CPO, and at-home customer appraisals.
Dealer groups that use The Appraisal Lane can see any trade-in arriving at any store, at any time. If Store A isn’t familiar with a car and doesn’t want it, but Store B is familiar with it and does want it, Store B suggests the right number. Store A assigns the right number and gets the deal. Store B gets in-demand inventory at the right price, and the customer gets a great trade-in experience.
Step #3: Use a Disciplined Approach to Improve Your Used Car Department
Once you have a well-defined trade-in process in place – one that each member of your team fully understands and embraces – you must execute that process each and every time.
Internally, a consistent and disciplined trade-in process is one that you can successfully measure, track, and fine tune. It creates accountability and efficiency within your dealership. It leaves nothing for interpretation among your team members. It facilitates replication, which is key to growth and expansion.
Externally, a consistent process builds trust. Consumers will come to rely on your dealership to conduct detailed and repeatable trade-in evaluations. They will trust that you give your customers fair trade-in offers, and word will spread within your community.
Because consumer confidence is a key driver of repeat business, as well as customer referrals, it’s important for your dealership to build trust at the very outset of the car buying process – a process that involves a trade-in for millions of consumers each year.
Building trust is another great way to improve your used car department.
Step #4: Avoid the Most Common Trade-In Process Mistake
Have you ever stretched to make a deal in order to hit the next level on your stair step, or to hit your OEM sales objectives, or to sell the oldest car in your inventory?
If so, you probably overstated the value of the trade-in and front-end gross. As a result, you were buried in a piece of inventory and you may very well have overstated commissionable gross in the process.
How did you get there?
You made one of the most common mistakes dealerships make. You failed to ask the ever-important question “Does this vehicle fit my inventory stocking plan?” You need to answer this question realistically each and every time a trade is evaluated.
Let’s say a trade-in hits your curb with an estimated value of $12,000. At this point, you need to determine what it’s ultimately worth to your dealership. For example, if it meets your stocking plan, the retail number on that unit might be $12,600. If it doesn’t meet your stocking plan, the wholesale number on that unit might be $11,600.
Determining the vehicle’s unique worth to your dealership based on your inventory stocking plan – each and every time a trade is processed – is a critical step to avoid this common mistake and improve your used car department.
Step #5: Manage Your Inventory from Day One
Just as discipline is a critical factor for a successful trade-in process, it’s equally important for the entire inventory lifecycle.
As we mentioned earlier, this process starts with accurately assessing each vehicle on its own merit, every single time, then determining its value to your dealership based on your inventory stocking plan. If you choose to acquire the vehicle, stick to your goals and targets.
This disciplined approach enables you to manage inventory from day one (when it matters most) versus day 90 (when you stand to lose the most). Inventory valuation should be an ongoing process, particularly after reconditioning.
Finally, don’t forget to price your inventory to market using a standardized pricing strategy. When it comes to GMs and owners, be sure to review your trades on a regular basis with your Used Car Manager.
Create a Collaborative and Transparent Sales Environment
Some of the most successful used car departments understand the importance of creating a collaborative and transparent sales environment, both internally for their team and externally for their customers.
They understand that collaborating and developing relationships with a network of resources who have expertise across all makes, models, and markets – particularly when it comes to non-core units – is key to putting the right number on a trade from the get-go, to minimize downside risk some 30, 60, or 90 days later.
They also value a trade-in process that’s consistent so they can measure, track, and fine tune it to create accountability and efficiencies, and to grow and expand as well. Instead of chasing whales, they determine a vehicle’s unique worth to their dealership based on their inventory stocking plan every time a trade is processed.
They create transparency - and trust - with consumers with customer-assisted appraisals. Sometimes a simple explanation, such as the fact that a customer’s vehicle doesn’t meet their stocking plan, goes a long way in helping customers understand their trade-in value. It’s also a great opportunity to ask questions about a customer’s vehicle, such as prior paint or bodywork, known mechanical issues, or routine service and maintenance.
And they promote transparency within their dealerships in the form of routine cross-department meetings in which they communicate their shared goals and objectives.
You can be one of these successful dealers, too. By implementing these easy and actionable steps, you can improve your used car department, keep your customers coming back, attract new customers, and ultimately grow your business.