Fallout from the lockdowns of 2020 continues to be felt in the form of chip shortages and supply chain issues. New cars simply aren’t making it onto the lots, but with a consumer base eager to buy, dealerships have had to get creative if they want to stay afloat.
One of the most effective ways dealerships have found to keep cars coming in has been turning to private sellers. Not only has this approach helped dealerships maintain turnover, it also is a good source for referrals.
Buying from private sellers may seem like a hot new trend, but it’s something acquisition experts have been doing for decades. And dealers who had a seasoned internal process for private seller buys coming into the pandemic have benefited the most through this shortage of vehicles to sell.
Take Spokane (WA) Hyundai, for instance, which from July to November of 2020 netted more than $64,000 in profit from 24 vehicles acquired off the street. That was nearly a sixfold return on investment for the store in only four months.
“In four months, we saw $76,034 in gross profit, plus at least four retail sales,” says dealership principal Greg Churchill. “This represented a net profit increase in pre-owned of over $60k in a four-month period.”
In midstate Illinois, dealership principal Matt Taylor started building his private sector acquisition over a year ago. What led him to that? “If you’re at an auction with 300 people in the lane, you got to (outbid them) and then pay the auction and then pay to ship it and then pay to get it. Next thing you know you're $1,000 over what you wanted to pay,” Taylor says.
“Buying at the auctions can be a loser’s game.”
As an automotive industry veteran, Gary Wade has seen his share of practices come and go. But one constant has always been the importance of obtaining the best inventory possible.
“I hope everybody realizes the most important thing you can do right now is acquire good inventory,” Wade says. “Anyone who isn’t aggressively going after that business right now or aggressively going after acquisitions is missing the boat.”
Bill Anderson of Vehicle Acquisition Network, or V.A.N, is happy to see so many dealerships catching on to the benefits of private-party sellers. He has been helping dealers buy cars off the street from the public with his company’s proprietary software since 2014.
“It’s not easy,” says Anderson. “And the success that we see with our dealers isn’t us. It’s each individual dealership. It’s the staff. It’s the leadership. It’s holding people accountable for what is needed in today’s market and responding to that.”
Connecting With Private Sellers: 3 Key Fundamentals
While some dealerships are struggling to find their feet with what they see as a new way of doing business, others have already built their reputation on the success of acquiring vehicles from the private market. Here are a few key fundamentals:
- Offer to buy without obligation: Letting sellers know you’re willing to buy their car even if they don’t buy from you is a strong way to build trust and confidence in the deal. A low-pressure, non-traditional sales approach often works best.
- Emphasize your value propositions: Many sellers may be initially wary of selling to dealerships, believing they can get a better deal through private buyers. But communicating the benefits of working with a trustworthy dealership will help sway them.
- Keep following up: While you don’t want to pester sellers, staying on their radar is important in making the deal. Even if you’ve received a no, you can still circle back after 7, 14 or 28 days and if their vehicle still hasn’t sold, they may be more willing to make a deal rather than waiting for a different offer.
Private sellers may initially think they can unload their used car quickly and make a tidy profit. What they don’t consider is how much time and energy goes into those sales – and the issues that can arise once the sale is done. From fielding texts and calls to no-shows and financing problems, selling a car can be a massive headache for private sellers.
Ben Dykstra, brand manager at Vehicle Hero, says his advice is to “get in early with a realistic offer, give advice and reinforce you’re there as a backstop.” Often it’s better to let a private seller see for themselves how difficult selling a car can be, he explains.
Private sellers often wind up back at that dealership they shrugged off a few weeks earlier after encountering frustration.
They need to have a couple of low offers from people, they’ve got to have somebody stand them up on their lunch break to not see the car,” Dykstra says. “They gotta think they have a deal only to have the buyer not get approved from the bank and they’ve turned down three other offers in the meantime and now they still don’t have a deal.”
To summarize, finding and connecting with private sellers gives dealerships access to more unique vehicles, leads to new business and positions the dealership as the go-to place for everything automotive.
Regardless of pandemics and chip shortages and supply chain issues, dealers need quality cars they can sell, and acquiring them from private sellers off the street is a tried-and-true best practice that has only been enhanced with good data and modern technology.
Ryan Gerardi (pictured above, left) is producer and host of the AutoConverse Podcast.