Creating a World-Class Used-Car Department, Part 2

Second of two parts

This is part two of an article that covers the many pieces of the puzzle that makes up a world-class used-car department. It includes some best practices I have found the most successful dealers use to win at what can be a very profitable game of used-vehicle sales, especially in the current market.

Part One addressed inventory management from the standpoint of acquisition and managing ROI. This article focuses on pricing strategy, a defined disposal strategy and online and on-the-lot marketing.

Pricing Strategy

A big part of marketing used cars is to have a pricing strategy that maximizes profit and minimizes unnecessary aging. You need to be decisive and make price changes quickly. Be sure your strategy considers comparable vehicles and the current supply in your area. Look at a competitive set of like vehicles and how your price stacks up against them. If there is a surplus in your market, price to the average, but have an intentional, well-defined process for marking down. Perhaps start a little high on day one and then mark it down at defined age markers. For example, to maximize profit potential, in the first 15 days price at what you think is the most it could be worth in the market. If that vehicle is scarce, it might sell quickly, and you want to maximize profit. On day 15, mark it down, and then by day 30, price it more aggressively and continue to reduce the price at least weekly, if not more frequently, from thereon out.

A Defined Disposal Strategy

When acquiring used vehicles, a defined strategy for how you intend to dispose of each vehicle can help minimize headaches, increase efficiency and increase wholesale profit. Have a consistent process when disposing of inventory and, as part of that, think through what outlet will get you the most money possible with the least worry. Most importantly, keep it simple.

A specific aging policy is important. It’s crucial to know when to get rid of a vehicle that is not performing, and whether to trade it among your stores, send it to auction or go through a trading platform. In normal times, a popular aging policy is 60 days. If you have an asset that is tying up $40,000 and depreciating daily, as that is what used cars do, you need to get that $40,000 back and invest it in an asset that is more likely to perform.

The time frame doesn’t need to be 60 days, but you do need to have a defined aging policy and understand when a car has not performed. At that point, decisively move on from that vehicle so you can invest that money into something likely to perform for you.

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 If you send vehicles to a local sale, be mindful of when your inventory runs and the size of the buyer base. Naturally, if you send it to the local auction, you want to get as much money as you can. But you don’t want to fall victim to a weak market because of who happens to be present and available on any particular day. The challenge with a traditional auction is, perhaps on the day you sell your vehicle, few people are standing in your lane. Think of it like real estate: On average, would you sell your house for more by listing it on the national MLS or by selling it through word of mouth or a small circle? Using a national market is a huge advantage as your vehicle can be bid on by buyers across the country. So, be wise about where you sell your vehicles and if there is a decent buyer presence.

Speed and efficiency matter. Once you have decided to dispose of a vehicle, get it done quickly.

Typically, you must call the auction and arrange to have the vehicle transported. It then is sent to a local sale where it may sit for up to a week in a holding yard before it is presented to buyers. When it finally does run down a lane, roughly 60% sell and 40% do not. If a vehicle does not sell, you either must attempt to sell the vehicle again the following week, take an offer that was lower than your floor, or send it elsewhere. Meanwhile, that vehicle is depreciating every day. Once you have decided to wholesale a car, the sooner you have the buyer locked in, the better.

Align Your Online and On-the-Lot Marketing

When it comes to marketing, your online and physical presence are equally important. On the physical side, the lot needs to look attractive and clean, with cars presented in an orderly fashion to present a well-run operation.

The same approach is true for your online presence. And speed to market matters. One positive is that you can list a vehicle online as soon as you take it into inventory, even if you only use stock photos.

Ideally, you should start getting eyeballs on your inventory right away. Then, have it photographed as quickly as possible. If you do not have the budget for a photo booth, you can still have high-quality images. The key is consistency. Present the vehicle with an attractive background and always photograph in the same spot, with the same vehicle positioning, ideally after the vehicle has been reconditioned. That way, you offer a consistent experience on your physical lot and digital lot.

The online vehicle description is just as important as the images. Be sure to have an exciting online description that describes the vehicle well, brings it to life and helps drive an emotional response to the listing.

Nick Gerlach 2021 Headshot (1)

Lastly, be sure to strategize to help drive traffic to your listing, such as partnering with large listing sites, so your vehicle is displayed to the largest audience possible.

There are several more points in addition to those I have covered, such as the use of technology, logistics and best sales practices, including the importance of measuring everything. But that is for a future article. 

Nick Gerlach (pictured, above left) is executive vice president-Operations & Product Strategy at CarOffer.