New-car dealers do trade-ins daily, but it’s an imperfect art.
The trade-in process can leave customers sore, usually over differences in what they and the dealer think a trade-in is worth. In a survey, 21% of car buyers cited negotiating a trade as frustrating.
But dealers can suffer trade-in remorse too, especially if they are stuck with a loser cruiser that ends up lingering on the used-car lot.
“Dealers are not spending enough time using trade-ins to enhance their inventory,” says Brian Tinkelmeyer, director-business development for vAuto, a provider of inventory-management software.
“One dealer told me his porter executes many trades,” Tinkelmeyer says at a recent DrivingSales Presidents Club conference. He cites a study in which trade-ins accounted for 20% of aging lot vehicles that wear out their welcome.
Dealers can have a business reason for agreeing to undesirable trades. “Sometimes, dealers take a trade-in to make a new-car sale, and get stuck with a car they don’t really want,” says Andrew DiFio, dealer principal at Hyundai of St. Augustine in Florida.
Trade-in vehicles can make up 40% of a dealer’s used-car stock, so it’s vital to “make strategic trades to get the right inventory mix,” Tinkelmeyer says in offering four profitable inventory tips. The other three are:
- Know local supply and demand dynamics of all stocked vehicles, new and used.
- Align pricing to what’s in local demand, including colors. The same two makes and models may fetch different prices if one is of a popular color and the other isn’t, he says, “Sometimes, a customer knows a dealer has the only red Hyundai Elantra in town, but the dealer doesn’t know that.”
- Promote accessories. Vehicles outfitted with aftermarket add-ons carry higher profit margins, “like desserts in restaurants,” he says.
Vehicle inventory management is important because so much money is involved, he adds. “On average in the U.S., 3.8 million vehicles representing $1 trillion are on dealer lots. I don’t know of any other industry that has so much money tied up in inventory.”
Yet, “70% of surveyed dealers say they are not entirely happy with their inventory mix.”
