In some car markets such as Europe, auto dealership customers order a vehicle to their specifications, then wait for it to arrive. That can take weeks.
In the U.S., automotive consumers are less patient. They may spend weeks online vehicle shopping and researching, but once they’ve landed on a selection, they want it right away. Immediate gratification is part of auto retailing.
What happens when the dealer whom the customer selected to do business with doesn’t have in inventory the desired vehicle? Often, the dealer calls a fellow retailer and does a vehicle trade.
“Say your customer wants a silver Toyota Camry, but you don’t have it in stock,” says Brian Finkelmeyer, senior director of the Conquest platform at vAuto, an inventory management software provider. “You call a dealership that has a silver Camry, and ask that dealer to trade it for, say, a black Camry you have in stock.”
Few people outside auto retailing know it, but dealer-to-dealer trades are “a day-to-day part of the business,” Finkelmeyer says. “Eighty percent of them are handled in a two- to three-minute phone conversation.”
In some cases, 25% to 40% of vehicle sales involve a dealer swap of some kind. “It’s a bigger topic than many people realize.”
The practice relies on relatively friendly competition. (It helps if the participating dealers are golf buddies.) vAuto isn’t trying to ice over those relationships, but an algorithm-driven upgrade to its Conquest platform allows dealers to determine which inbound traded vehicles would perform well in their markets.
The digital tool allows dealers who consent to trading a requested vehicle to in return get something that is as popular, is marketable and definitely not a dog that overstays its welcome on the lot.
A vAuto study indicates dealers monthly make 22 trades with other dealers on average, and 17.7% of those are at a loss, typically because they are slow sellers.
“The goal with the new upgrade is that every time you give a car, you get in return a car that is as good or better,” Finkelmeyer tells Wards.
A reason dealer trades are so common is that automakers offer an array of color selections, trim levels and option packages. Considering such a multitude of possible configurations, a dealer can’t stock them all. That’s where dealer-to-dealer trades come in.
“New-vehicle trading is an important part of the business, and ordering restrictions can make it challenging to get the exact inventory needed for a market,” says Randy Kobat, senior vice president-inventory software solutions at Cox Automotive, vAuto’s owner.
Conquest’s new market-data-crunching tool “enables dealers to make trading decisions based on insights, not gut, to reduce losses and improve their inventory,” he says.
Finkelmeyer recalls talking to top management at a major dealer group that recently listed key operational elements and then focused on improving each. An item on that to-do list is doing better dealer trades.
A level of amity is required between trading dealers to make it work, although sometimes “frenemies” begrudgingly engage in it, figuring it’s a two-way street of reciprocity.
But some arch-competitors refuse to swap cars with each other, says Finkelmeyer, a former Nissan district sales manager in metro Atlanta.
“There were two rival Nissan stores there that would never trade with each other,” he recalls. “They wouldn’t even make the call, because they knew the answer would be ‘no.’ (Brian Finkelmeyer, left)
“Then there are situations where a dealer will trade with this guy, but not that guy. And the last thing you want to do is (snooker) somebody by sending over a damaged car. But mainly, dealers are on friendly terms and work together.”
He quotes an adage of the industry: “‘You can’t make money on cars that get here next month.’ In a dealer trade, they arrive tomorrow.”
Clients seem to like the trade-related upgrade. “Their eyes light up when we show it to them,” Finkelmeyer says.
It eliminates hassles, says Turner Silk, inventory manager at Glenn Ford Lincoln in Nicholasville, KY, and Glenn’s Freedom Chrysler, Dodge, Jeep, Ram Dealer in Lexington, KY.
“Having the necessary information readily available prevents us from taking the wrong vehicle back in exchange and keeps our inventory flowing smoothly,” Silk says.