Sales pick up; tips on replenishing used-car inventory
Ward’s Remarketing 150
Related document: Ward's 2009 Remarking 150 List
Last year was bleak for automotive remarketing — sales and prices were down while margins were hammered in every segment except for compact cars.
So far in 2009, the opposite is true. According to a recent report from Manheim Consulting, retail used-vehicle sales were up in July 3.4%. Wholesale prices went up for the seventh consecutive month.
Even better, dealer margins were up almost a full percentage point year-over-year.
The increases are driven by a lack of supply. New vehicle sales have dropped to a rate of 9.1 million units this year (pre-Cash for Clunkers), which means far fewer trade-ins.
Clunkers helped somewhat. In addition to the more than 700,000 direct sales the program created, Manheim estimates it aided another 400,000 non-clunker sales, which means 400,000 more used vehicles in inventory.
Adding to the scarcity of used vehicles, the rental companies are holding onto their inventories longer. In past years, when the vehicle hit 30,000 miles, off to the auction it went. Today, it's shot past 40,000 miles.
Dealers who have access to capital are benefiting. Butch Hancock, general manager and managing partner for Kenny KentLexus Scion (part of the Van Tuyl Automotive Group) in Evansville, IN, says being well-capitalized helped significantly.
Kenny Kent sold 1,688 used vehicles in 2008, ranking 62 on the Ward's Remarketing 150 and is on a similar pace this year.
Hancock, who came up through the industry on the used-car side, says the right staff that shares his philosophy is critical to the store's success in used vehicles.
The trick is having the right inventory and quickly pulling the plug on the wrong inventory, Hancock says. On the right inventory, booking out on the pricing is critical.
“You have to price to maximize profit, but you also have to price competitively,” he says.
He says sourcing vehicles isn't much of a problem because he has a strong new-car business that brings in a lot of trades.
Still, many dealers aren't as lucky, or smart.
If traditional sources, such as trade-ins and auctions, are proving to be scarce, where do you find vehicles at?
Consultant Tony Albertson, a used-car specialist with NCM and Associates, says finding inventory is a big problem today, but it's available if dealers get creative.
He suggests dealers hire an offsite buyer to beat the bushes for vehicles. It's OK to pay the buyer anywhere from $200 - $500 for each vehicle but tie the compensation to how fast the vehicle sells.
Provide specific instructions on which vehicles you need. Don't let the buyer buy off the cuff.
Another suggestion is to advertise everywhere you buy used cars.
“It's what made Carmax famous,” Albertson says. “They will buy the used vehicle, even if the customer doesn't buy a vehicle from them.”
Albertson also recommends maintaining close ties with other local dealers who might be wholesaling vehicles you need.
He also tells dealers to not ignore their current customers. Create a direct mail campaign to customers in your database offering to buy their vehicles.
You also can target your marketing to customers owning vehicles you need. Be sure to personalize the letters or emails for each customer, Albertson says.
Another critical piece — if you're paying for inventory management software, such as AAX, VAuto or FirstLook, use it. It may take some effort, but it's worth it.
Finally, don't give up on the auctions. If you're not already using the online auctions and services, you likely will find it increasingly more difficult to secure used-vehicle inventory.
Sites such as Manheim's OVE.com and Manheim Simulcast allow dealers to conduct all of the pre-auction and pre-sale research, acquire inventory before it even reaches the auction and trade with other dealers.