One of the areas where a dealership is the most vulnerable is in used-vehicle wholesale. How can this be when selling cars and trucks is our business, and we are "on top of the market"? What creates this vulnerability? There are several possible answers, but, in my opinion, a lack of discipline is the number one reason.
We're human. So we sometimes make a mistake when trading for a used-vehicle and sometimes even with a purchase vehicle.
Is there anyone of us who haven't missed a major item sometime during an appraisal process or purchase? How we handle that mistake is the key.
For example, let's assume we missed an engine problem and find out while having the inspection completed in our service departments, it would cost $1,000 to repair. What is our next step? Well there are two options.
One, we repair the vehicle and try to retail out of our problem. (Remember though, the clock is ticking.) After three or four weeks the car is finally ready to retail. We now have 30 days to sell the vehicle. By this time everyone, especially the sales personnel, knows this vehicle is a problem. Being human, they might not want to retail the vehicle because of its history.
At this point, as a manager I know the vehicle has to go. So I offer a flat $500 commission on any deal the house accepts. Where does it stop? Our second option on this same vehicle is to wholesale it immediately after finding out that there is a problem. Sure, we most likely will have to take a loss, but how will that loss compare to the loss described above? It requires discipline.
Another area of vulnerability we often see and debate is the wholesale pack. An amount, say $150, is added to every used retail vehicle we trade for or purchase. The $150 is placed into a reserve account to offset future wholesale losses.
The concern here is twofold. One, unless you take the time to analyze the account, how do you know what your true loss or gain on wholesale is? My other concern is this: When a wholesale pack policy is instituted, human nature again takes over. When I am appraising a vehicle and I know that I will spend $350 on reconditioning and $150 for a wholesale pack, how far back do I appraise the vehicle to protect myself? Does this policy cost me retail business?
There are many other situations that make us vulnerable and contribute to wholesale losses including:
1. Having personnel not familiar with the market appraise vehicles.
2. Loaning used vehicles to service customers in lieu of a rental vehicle.
3. Using used vehicles (especially program vehicles) as demonstrators.
4. Buying what we "want to drive" at the auction instead of what sells quickly.
5. Buying too many of one vehicle line instead of buying a few, selling them quickly and then buying more, probably at a lower price.
6. Stocking our retail inventory with vehicles that don't match our franchise profile, i.e. keeping a Mercedes you trade for at a domestic franchise instead of accepting the buy bid you received when appraising it.
7. Failure to observe an aging policy.
In the NCM Used Vehicle Study highlighted in my January article we found that making a wholesale gross profit is highly dependent on a strict aging policy.
We also determined that our losses are greater on purchase vehicles than on vehicles we trade for. Based on my personal experience and many 20 Group meeting discussions, our greatest loss potential is on program vehicles.
I strongly recommend that you immediately initiate a program where a program vehicle cannot remain in inventory for more that 30 days. If you adopt this policy, as well as not buying too many at one time, not loaning them, and not using them as demonstrators, your potential for loss will be greatly reduced.
A strict discipline regarding wholesale activity coupled with a commitment and adherence to that discipline will result in the elimination of most, if not all, wholesale concerns. Good selling!
