If your used-car department consistently has vehicles sitting on the lot for longer than 45-60 days and finds itself wholesaling more vehicles than you'd like, then shame on you — your dealership is behind the times.
And you'd better catch up or you may find yourself without a dealership before long.
Strong words, to be sure, but the evidence throughout the industry is piling up — dealerships employing new software applications are significantly reducing wholesale losses while increasing retail sales and used-vehicle profits.
Bob Pietroske, a Wisconsin-based dealer with several General Motors Corp. brands, says he is a used-car dealer that distributes new vehicles for his OEM.
The fact is, in today's retail environment, the used-car operations are the last bastion in the dealership in which you can control your destiny.
You get to choose and control your inventory; you can price it at whatever level you feel is best; and, other than OEM certified programs, you're free to do as you please.
It is the used-car operations that separate the men from the boys in automotive retail. Says David Porter, general manager for Hendrick Acura in Charlotte, NC: “You don't know how to do new cars unless you've done used cars successfully.”
An area that has long been neglected, used cars now is where many franchise dealers see as the place to protect and hopefully grow their businesses. But as more dealers turn their attention to used-vehicle sales, the competition in this area will only get hotter.
And that means having the right intelligence to make smart decisions on appraisals, inventory acquisition and pricing is becoming more critical.
It's happening almost overnight. The guessing game in the used-car operation will be a relic of history.
Generally, dealers are beginning to understand they can't operate any longer on an “I think-I feel” basis, says Andy Knowles, technology product manager for Reynolds and Reynolds.
“It really is turning into more of a science,” he says. “It's what happened in the parts department 30 years ago. Now it's happening in used cars.”
These new applications are no longer the property of the so-called early technology adopters. Your competitors across the street possibly know exactly what's going on in your used-car department — and may even have a better idea than you do about the health of your operation.
The products range from the premium and robust — and yes, expensive — tools such as FirstLook and Jmsolutions' AAX Inventory Management Solutions to less powerful applications offered by Dealer Specialties, Kelley Blue Book and Dealertrack Inc.
Essentially, the more robust inventory-management tools analyze your used-vehicle sales history along with what's going on in your local market and then provides recommendations on pricing, appraisals and what vehicles to stock.
Entering the market, Chicago-based VAuto is launching an inventory-management tool that ranks a dealer's inventory against the competition's based on price, measuring variables such as mileage, equipment, and certifications.
Nearly 1,500 dealers, including AutoNation Inc. and Group 1 Automotive Inc., are using AAX, the clear-cut leader in the space.
In 2006, Group 1 went from losing $75 a vehicle in its wholesale operations to making $109 per vehicle through the first quarter this year. Meanwhile, the number of units wholesaled dropped 2% as retail sales increased 2%.
“That shift may not seem like a lot, but it's very dramatic when you multiply gross profit opportunities,” Pete DeLongchamps, Group 1's vice president-manufacturer relations, told investors in March.
Meanwhile, Hendrick Chevrolet, one of nearly 1,200 stores using FirstLook increased its used-vehicle profit 35% in 2005 and another 29% in 2006.
“The basic idea is to provide you with information that lets you stock the right car at the right price at the right time,” says Brian Page, a vice president with Dealer Specialties. “We're beginning to answer the two questions that matter most to the dealer: How many days on the lot and how much gross per car.”
Pat Ryan Jr., founder of FirstLook, says it really is about finding ways to help dealers drive their numbers.
“We need to help dealers become great at getting the most out of their inventory, stocking the right inventory and maximizing the number of appraisals they close,” he says.
FirstLook, which spends a lot of time training dealers, also has built a predictive search tool that canvases more than 30 online marketplaces for vehicles it has determined you need in your inventory and e-mails or faxes that list to you each morning.
One obstacle to implementing new tools may be your used-vehicle manager, who probably believes he is the best in the business at knowing how to appraise vehicles and how to price them.
“They may feel threatened,” says Knowles.
Adds Ryan: “You'll likely hear, ‘Hey, I know this already.’”
As good as these tools might be, even the people selling them don't believe they'll replace the used-car manager.
“We want to take them from good to great,” Ryan says. “The best used-car managers are the ones who want to get better.”
Phil Smith, president of the Phil Smith Auto Group, one of AAX's early customers, says the software can help pinpoint integrity issues, especially if you have remote dealerships. It can also eliminate mistakes in the used-car department.
“It keeps us from being stupid,” Chris Little, Hendrick's director of new- and used-vehicle operations, says.
Despite Hendrick's success, Little cautions against “letting a machine dictate what you put on the lot. It's both an art and a science.”
As the industry becomes more “intelligent” about the used-car part of the business, dealers are going to see less volatility in what customers are willing to pay. In other words, the home-run deals will disappear.
“We all hear of that home-run deal, but we think those will become less and less,” Page says.
Dale Pollack, founder of VAuto, says dealers continue to labor under the illusion that if a vehicle is priced wrong, they might still get lucky and have somebody stumble onto their lot, fall in love, and take that car home for too much money.
“Ask yourself, when is the last time that you made a home run on a used vehicle in the primary market?” he says. “There just aren't as many lay-downs out there as there used to be, and there will be even fewer tomorrow.
“It is time to wake up to the reality that vehicles must be priced right from the beginning in order to create enough inventory turn to earn a profit.”
Too Crazy to Believe: Used-Car Inventory Sits and Sits
This story almost is too crazy to believe, but an unnamed import store on the East Coast was turning its used-vehicle inventory approximately 1.5 times a year until recently.
No, that is not a typo. It was 1.5 times a year. Experts say dealerships should turn their used-vehicle inventory no less than eight times a year. If you're doing 10 times, you're in the elite category. We won't even say what category this store was in.
“We had cars on the lot for more than 2,000 days,” says a manager, exaggerating slightly. “We just never paid attention to it.”
Earlier this year, the store basically stumbled onto a new inventory-management tool developed by VAuto.
Within months, the dealership became the No.1 certified used-vehicle dealer for its brand. In June, the store sold more than 90% more used vehicles than it did last June.
Within a couple more months, the store will be turning its inventory at a rate of 18 times a year.
It is likely other applications such as Jmsolutions' AAX Inventory Management Solutions or FirstLook would have helped this store in a similar manner. The point is, many dealers are reporting dramatic results using inventory-management tools.
With every dealer listing their inventory online today, it's possible your vehicles aren't even being seen, says Dale Pollack, founder of VAuto. The trick is to get your vehicles on shoppers' short lists, which, on average includes five vehicles.
Pollack believes the best way to do that is to compete on price. He is launching an application that ranks your inventory against your competitors' based on price, measuring variables such as mileage, equipment, and certifications.
Theoretically, you could know exactly how to price your vehicles based on your own sales history and your competitors'.
— Cliff Banks