Although demand for new and used vehicles remained hot through the summer months, the deep-rooted effects of COVID-19 continue to erode profits for many auto dealers who have been forced to acquire used inventory at bloated prices at auction.
Manufacturer delays and reduced inventory have curtailed dealers’ ability to maintain new-car sales volume. When they pivot to used-car business, dealers are met with another headwind: Wholesale acquisition prices are up to 27% higher than they were a year ago, according to Manheim.
The automotive auction house also reports the mid-month Manheim Used Vehicle Value Index was 162.7 in October, its second-highest value ever, behind August at 163.7, and a 16.0% increase from October 2019. With it reaching this level, is it too high for dealers to remain profitable?
2020 Created Supply & Demand Havoc
The issue began early in the pandemic when automakers idled factories and shuttered dealers stopped sales and trades of vehicles, drastically altering the natural flow of supply and demand. With fewer low-cost new vehicles to purchase, many consumers turned to used. And fewer lease turn-ins and trades forced a severe supply shortage, creating high prices at auction.
Savvy dealers have been leveraging technology, social channels and new thinking to circumvent traditional auction houses and the higher-priced inventory that comes with them.
To exercise greater control over their inventory, dealers have realized they cannot rely as much on the manufacturer providing cars for them to sell. Many are beginning to pivot to creative methods – social marketing, digital advertising and even fixed ops.
Creative Thinking Combines With Everyday Advertising Tactics
Today’s progressive dealers are activating creative new ways of sourcing used cars, such as Facebook lead ads featuring “We’ll Buy Your Car” or “$1,500 Over KBB for Your Trade” messaging. One dealer group of more than 30 rooftops deployed such a campaign in August and drove over twice the trade leads they were accustomed to, resulting in an abundance of used-car acquisitions.
Keyword search advertising on Google, Bing or other search engines may not be considered “cutting-edge” today, but it’s still a tactic many dealers fail to think of first in their fixed-operations advertising strategy.
By missing out, dealers could be losing low-hanging fruit to third-party vehicle maintenance providers, especially during seasonal occurrences such as air-conditioning work in the summer, or tires and brakes in the winter.
What’s more, today’s digital advertising technology allows for retargeting and ads placed ahead of video content on popular sites such as YouTube.
The whole purpose is to capture more traffic for fixed-ops business, not only because this is good revenue, but these customers also represent a prime captive audience for potential sales and trade-ins once they’re in the waiting room.
Finding Used Inventory Through Fixed Ops
As used inventory has become harder to come by, savvy dealers are getting creative and relying more on their existing customer base to find inventory – and sell a new vehicle or two.
Service visits offer a great opportunity to get to know these customers, and plenty of sales resources and technology can identify likely customers who have attractive vehicles prime for trade-in when they bring them in for service.
Equity-mining technology is valuable in these instances and can help dealers gain critical insight into the vehicle for potential acquisition value, as well as the customer for a potential new sale. Additional goals, incentives and spiffs can boost team morale so that everyone involved in the process is rewarded when a service customer is turned into a new vehicle for used inventory, and a new sale.
With these tips and techniques, dealers gain more control over acquiring the right used inventory at the right price without relying on the manufacturer for inventory, or on the auction sites that have made vehicle profit potential more difficult during the pandemic.
Regardless, even when supply and demand return to more normal cycles, the use of digital advertising technologies can put more power into the hands of each dealer and raise profit potential.
Lauren Donalson (above, left) is senior director of national accounts for PureCars, a leading automotive dealer advertising and attribution technology provider.
