July 2012, Auto Dealer Today - WebXclusive
If you’re not using electronic pricing technology in your used vehicle operation, you are at competitive disadvantage in your marketplace. This technology can make your retail pricing and appraisals more competitive, increase your total department gross, raise your inventory turn ratios, and increase your fixed operations gross, in addition to eliminating aged inventory.
In 2011, upwards of 70 percent of used vehicle sales were generated though a Web search.
The used car marketplace has changed so radically that it’s almost impossible to compete without technology packages such as vAuto. This technology takes the guesswork out of pricing and gives access to retail market sales data of similar vehicles in your market in real time. It can allow other non-managerial personnel to perform many of the functions historically performed by the used car manager. In essence, it allows dealers to use fewer, lesser-compensated employees to make the used car department more efficient and less costly to operate.
Today’s consumer has access to thousands of vehicles online. He does not have to leave home to comparison shop. Many of these vehicles available online may be exact copies of vehicles on your lot. If you are digitally marketing your used inventory, your pricing policies must be set to keep your inventory in the top 20 of similar vehicles. Pricing technology is the only way to accomplish this. In order to make sure that your vehicle is the one chosen for purchase, you will have to maintain a competitive-price ranking on sites like AutoTrader.com and Cars.com. Monitoring your vehicle rankings is something that has to be done daily.
Software packages like vAuto can help you do the monitoring and can be set up to scan the market in various assigned radiuses for similar vehicles and their price differential to your vehicle. Keeping your vehicle at or near the top of the competitively priced will make that vehicle more likely to sell, but will also lower the gross profit on that unit. The dynamic electronic marketplace abolishes the old-school method of marking up all fresh units by $3,500 and letting them sit until they sell. The strategy of pricing your vehicles will change based on what similar units in your market area are selling for. Pricing technology provides additional benefits. For example, it makes it possible to maintain a strict 30-day turn, virtually eliminating all aged vehicles determined by whatever time period you establish.
The best pricing strategy is to group inventory into 3 pricing segments: zero to 10 days, 11 to 20 days and 21 to 30 days. In the zero-to-10 segment, pricing can be higher to potentially make higher gross profit. In the next segment, 11-to-20 days, the prices drop slightly to move inventory higher in Internet price ranking. The last segment, 21-to-30 days, is fire-sale mode. This is the most aggressively-priced segment, as your goal is not to have that vehicle on the lot for its 45-day birthday.
The stores that launch this technology successfully are able to reprogram their staffs to see that a faster inventory-turn cycle, the elimination of aged units and the huge volume increase that most stores experience greatly outweigh the low gross per unit that is common when first changing over. In many stores, it can be a difficult task to successfully launch this technology. The problem is reprogramming employees to endorse new philosophies and concepts that are a reality in used car sales today.
Another potential issue used car employees will have with this technology is how appraisals work. The new technology will appraise using a retail index versus a wholesale index, which sounds completely psychotic, but works! Using this philosophy, vehicles are appraised based on the retail sale price of similar units less a predetermined profit and reconditioning. If your competition is still appraising based on wholesale value, your appraisals will win the deal every time. The strategy assumes you are going to retail the unit, which makes the wholesale value irrelevant. If you stick with the philosophy and use the three tiered segments, it will definitely sell when it hits the sweet spot of pricing. There may be some units that you take a small loss on, but in aggregate, this technology will reduce wholesale losses tremendously.
Will this technology ultimately be the demise of the used car manager? Only time will tell.
Vol. 9, Issue 5