An estimated 80% of pre-owned vehicle buyers go online before they call or visit our dealerships. This means we must present as much information as possible and be competitive when pricing our inventory just to make their consideration list.
I was asked in one of our NCM 20 Groups: “If I price all my vehicles at or below the retail market that is perceived on the Internet, what is going to happen to my average gross profit per deal? Will it go down?”
The not-so-simple answer is: It doesn't have to. However, some change in culture and process is required for the average dealer.
Part of that culture change is changing our thinking as well as what operational metrics we track and manage. Very few dealers track what I call their “price-to-sale gap.”
That gap is merely the difference between your original asking price and what you actually sold it for.
Keep track of this number. Most of our focus has been on achieved margins, but it is the price-to-sale gap that offers the greatest insight into the effectiveness of your sales process.
Traditionally, dealers' price-to-sale gaps average $1,800 to $2,500. We price our inventory with the old hope of hitting the occasional homerun. This may happen, but if the pricing is on the Internet that way, we will fail to make the savvy consumer's consideration list.
So, what can we do to stay competitive and maintain respectable margin targets?
Start by tracking your price-to-sale gap and work towards a goal of $500 to $1,000 per unit sold. Achieving this is a matter of adjusting your sales process and the information you present to the customer. Sources of pricing information that you can present to a customer are on the Internet itself. Chances are customers have already taken the time to check them out.
Build a folder on every pre-owned vehicle you have in stock and use this information early in the sales process with every customer.
An important component of this information is supporting documentation for how you arrived at the price you are asking for the vehicle.
As long as I can remember, it has been a common in the consumer culture to ignore the sticker price and seek big discounts.
If you pull data directly from the Internet and show the customer what the current market is on similar vehicles with similar equipment and mileage, it shows them, in a tangible way, that your asking price is fair to start with.
This alone will help create a certain customer peace of mind. A fear in all consumers is paying a higher price than the next person.
Do everything you can to justify what you are asking for the vehicle. It is basic selling 101. It's creating value equal to the cost of goods. The old “scale-of-the-sale” balance has to be struck before anyone will purchase anything.
Set up a new bonus structure with your sales people based on their price-to-sale gap averages.
Track them individually and hold them accountable for developing better skills in presenting your pre-owned vehicle product. Arm them with all the Internet information that is at your fingertips to present your product in its best light.
Do you want to put this much effort into the pre-owned vehicle department?
If you are a franchised dealer, new-vehicle sales are not looking good for this year or next. Yet, the total pre-owned vehicle market on the other hand continues to be worth close to 42-two million units per year.
So, where's the opportunity?
Is a $500 to a $1,000 price-to-sale gap achievable? Well, one of the nation's largest publicly owned retailers of pre-owned vehicles has a zero price-sale gap.
How do they do it? By using the aforementioned strategy and metrics.
Tony Albertson is executive conference moderator for NCM Associates. He is at [email protected].
