Article

Used Vehicle Fear: What Exactly Are You Afraid Of?

July 2008, Auto Dealer Today - WebXclusive

by David Keller, CPA, CFE - Also by this author

Everyone knows you need a good mix of vehicles and the proper quantity in stock if you want to maximize your sales each and every month. Is this really true? If you think you need a “little bit” of all makes, models, etc. in inventory, then why do some dealers survive very well limiting themselves to only selling trucks, vans, SUVs or high-end vehicles?

There are a lot of fallacies in the used vehicle industry. I actually grew up working in my dad’s used car dealership. I decided I didn’t want to work in the dealership the rest of my life, so I went to college and became a CPA to get out of the car business. Doesn’t look like I got very far, did I? I must have accumulated too much asbestos dust, paint fumes and gasoline in my blood and lungs while working there. I went to a lot of auctions with my dad. We got there early and started walking the lot, looking at cars that were in my dad’s price range so he could hopefully buy the number of vehicles he needed before he ran out of cash. Yeah, he operated with just cash back then. He had no floor plan.

I was curious at that young age about a few things. I wondered how he knew what kind of vehicle to buy, how many to buy and what it was really worth. How did he know what someone would actually pay for the vehicle he bought? How did he decide how much to bid and when he would stop bidding? How did he know what was really wrong with the vehicle and how much he would have to spend on reconditioning? What if he guessed wrong? What if another dealer had “rigged” the vehicle to look or sound good as it went through the auction lane to be sold? He just told me you have to take a chance after checking out the vehicle as best as you can.

Now the big question: why are new car dealers and used car managers afraid to show up at the auction early (meaning more than five minutes before the auction starts) to actually look at the vehicles, test drive them if necessary and book them out for the maximum price you would bid?

I know the industry has changed dramatically over the years. You can now buy cars online without ever leaving your dealership. Wow! How much easier can it be? And you feel you can buy them without getting “burnt” too many times or too much.

Do you think the vehicles you buy at the auction, along with the vehicles you trade for, furnish enough of a mix of vehicles to maximize your sales? If you do, stop reading this article and move on.

It seems most vehicles bought at auctions by new vehicle dealerships are “program” vehicles. I don’t often hear that they are looking for anything else. This tells me most new car dealerships rely almost totally on trade-ins to round out the mix of vehicles they need on their lot. Does this make any sense? If you are relying on trades to do this, what happens if the more expensive vehicles you sell slow down and stop generating those great trade-ins your sales people get so excited about? It seems you are leaving your potential sales volume and profitability to fate rather than good business sense. Is that scary or not?

Why are you unafraid to buy my car if I show up and want to trade it in for a new or used car you have? Because you can drive my car, walk around it and discuss it with your used car manager or dealer before you make me an offer towards the new car. Why then, are you so afraid to go to the auction and bid on vehicles like mine? I know why. You think the only reason those vehicles are there is because they are “dogs” another dealer had to dump. There is a slim chance the dealer brought the vehicle to the auction because it was aged on their lot, or they did not have enough cash or floor plan to keep it.

I have a hard time believing all cars at auction are “dogs.” I hear this all the time. If this is the case, why aren’t all the used car dealers out of business? The only cars most of these dealers can buy are the trade-in type of vehicles. If they are “dogs,” why aren’t dealers spending a fortune reconditioning the cars, which would make it nearly impossible to make any money on the vehicles? If these cars truly are “dogs,” the vehicles wouldn’t last and the customers would start disappearing because of the dealership’s bad reputation. I know for a fact there are many very good used dealers in this country who purchase a lot of vehicles at auction and have a great reputation and many repeat customers. That is how my dad grew his business. He had no choice. He was a used car dealer for 20 years before becoming a GM Chrysler dealer. Most used dealers will never become a new franchise dealer, so they keep plugging away selling these “deadbeat, useless and tired old used vehicles” every day.

What I do see is many of these used car dealers eating away at the new car dealer’s used market because they are very good at what they do and have been able to keep their overhead low. They are not afraid to buy any type vehicle at the auction and recondition it because that is what they “specialize” in.

Why don’t more new car dealers “specialize” in used cars?

Vol 5, Issue 6

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