March 2009, Auto Dealer Today - WebXclusive
The Profitable Opportunity
As an SF director at an independent store, I am rooting for new car sales to rebound, and I hope the tax incentives for new car buyers become a reality. I realize, as most do, that the health of the used car industry ultimately lies with the new car manufacturers and their franchised dealers’ ability to convince individuals and corporations to trade up.
Our greatest opportunities in stocking clean, reliable used cars are through auctions that cater to new car dealers, lease companies and rental car corporations. I can only speak to inventory sourcing from my own perspective.
I could talk inventory sourcing ad nauseam but, until a dealership creates a special finance identity, such talk is meaningless. We have a solid reputation as the store to go to for late-model, low-mileage, certified vehicles. We are also known for being “bulldogs” when it comes to financing. The two concepts are not mutually exclusive. You can have the type of inventory that attracts your prime and super-prime customers and still be the big dog in SF. This is our chosen identity.
We keep between 40 and 60 vehicles in inventory, and 90 percent of our inventory is less than five years old, under 60,000 miles and under $11,000 car cost. The only place to replenish an inventory having such a profile is through the auctions. Yet, our dealer , who is our buyer, has not been to a physical auction in over six years. Every Monday thru Thursday, the owner has anywhere from two to five computers on Manheim and ADESA auto auctions literally from New Jersey to Dallas searching to add to our inventory. I am amazed, still, at how few online bidders there are from week to week. I (and the rest of our sales staff) pull and print hundreds of photos and condition reports each week in order for Lonnie to do what he is remarkable at doing—buying the right vehicles at or below our designated ACV.
If you are online at various auctions, week in and week out, you learn how each auction staff rates their vehicles on their condition reports. Some may exaggerate toward the quality of the vehicle; others are just the opposite and under-evaluate a unit. Transportation is simply a cost of doing business and averages between $300 and $500 per vehicle. However, transportation cost is easily recouped. The types of cars we purchase require little reconditioning, so part of the transport expense is made up by what we save on recon costs. The reputation we have built also helps us make that money back. The identity I mentioned earlier is set in our buying public’s mind. People know that “an Academy kind of car” means paying only a little more money but getting a lot more quality.
According to our 20 group, our level of gross profit is one of the highest, if not the highest, around. This is the 21st century. Many dealers are proud of their Web sites and are raving about the results of their SEO and Internet marketing in general, yet they ignore the efficiency of the Internet when it comes to buying inventory. There are auctions from coast to coast that cater to specific ACV needs. Stop limiting yourself only to the auctions you can physically attend. There is an entire nation out there with tens of thousands of vehicles waiting for you to “click and buy.” My advice to anyone struggling with their inventory sources is to sign up and log on.
Special Finance Insider Vol. 3, Issue 2