Former used-car manager Doug Hadden tells of a dealer who sold a new vehicle to a consumer, bought it back for the same price two years later at the height of vehicle demand – and within hours resold it on his used-car lot.
That’s why the used-car market has been hot, hot, hot in recent years although it’s cooling down somewhat.
“I’d never seen anything like this,” Hadden, a vice president at ACV, an online auction company and digital service provider.
Many consumers turned to the used-car market when parts shortages in the early years of the decade cut into new-car production and availability.
Soon, both new and used cars were in high demand.
The party isn’t over for dealers who made record per-vehicle profits as demand outpaced supply. But things are stabilizing a bit. For example, used SUV and pickup truck prices are down 7% and 3.7%, respectively, according to the Carfax Used Car Index.
“We’re about to land on a new normal,” Hadden predicts.
For dealers to thrive in that environment requires a true management plan of stocking the right inventory, he says during a “Used-Car Super Session” webinar hosted by the American International Automobile Dealers Assn.
Buying inventory on gut instinct? “Don’t do it,” Hadden warns, acknowledging he did precisely that as a young used-car manager. “It doesn’t work anymore.”
Instead, stock is based on market-demand data. That includes drilling down to identify what vehicles sell well regionally and at the dealership itself.
“The wrong car priced right is still the wrong car,” Hadden says. “Plan to maximize profit on every acquisition.”
For starters, stock on the used-car lot the vehicles which sold well as new cars, says Bob Grill, a Carfax senior manager. “What sells well new, sells well used.”
And car color counts.
A used-car veteran once quipped that purple vehicles should be outlawed because they become pre-owned car lot duds.
Conversely, black, white, silver and gray vehicles are most popular in the land of the red, white and blue, according to various surveys.
So, stock cars of those colors even though it’s hard to find them at auctions, Grill says. “You need to acquire them as trade-ins. They’re out there.”
He describes trade-ins as the darlings of used-car lots. “They turn faster and earn more profit. Homegrown inventory is as good as it gets,” Grill says
Fellow webinar participant Mike Rossman, a consultant and retired AutoNation vice president-sales, says it’s critical for a dealership to track used-car closing ratios just as it does in the new-vehicle department.
The market is trickier today, he adds: “You must be sharper today. The bar is higher than in 2020. Brush up on your closing skills.”
Documenting a used vehicle’s history – including how well it was maintained and how many previous owners it had – is vital to pricing and turning it to a dealer’s advantage.
“It’s top of mind for consumers,” Grill says. “Every used vehicle has a unique history and value.”
He recommends using powerful descriptions to market used cars. Such as:
“Just made available this beautiful, well-maintained, one-owner Honda Civic. We leased it to its original owner. Our Honda-certified mechanics have taken care of it its whole life. We know this car better than anyone.”
“Use descriptions to set your vehicles apart,” says Grill.
