Trade-Ins are Shoo-Ins

As a used-vehicle manager, I was told that to increase sales volumes, I needed to stock vehicles that could retail for half their original manufacturer's suggested retail price.

I'm not sure I fully understood the significance of that tip until later in my career. That advice is probably more applicable now than at any point in recent memory.

We are all familiar with the vulnerability and volatility in wholesale prices of late-model used vehicles. We know the impact new-vehicle incentives have on one- to three-year-old vehicles. There is little retailers can do to control that market.

Obviously, a strict aging policy discipline helps. But if you tend to lack the discipline for that, you may be suffering large wholesale losses if and when you need to dispose of this inventory.

So, how do you insulate yourself? You can't totally control this, but by stocking the proper inventory model and price mix, you are well on your way. What you can do though is take full advantage of the hottest market segment: the lesser expensive used vehicles.

You may be thinking, “I know that is the hottest market. All I need now are the vehicles that meet this profile and I, too, will do well.”

So, where to find them?

From years of studying and documenting used-vehicle transactions, we've found that highest gross profit comes from used vehicles acquired as new-vehicle trade-ins.

If we can attract the customers currently driving these highly desirable trade-ins, we not only have a chance to sell a new vehicle, we create our ideal used-vehicle volume inventory. It's a win-win situation.

In the most recent used-vehicle study conducted with our domestic and regular import franchised dealer clients, we found used cars with a cost of $10,000 or less account for 50.7% of their total used cars retail. Used trucks costing $10,000 or less account for 27.9%. Per used unit retailed grosses exceed $1,500 on cars and $1,600 on trucks.

Dealers routinely tell me that, if you are trying to appraise nice older vehicles using a book, you likely are missing business. Education then becomes a key if you truly are serious about getting into this business.

Dealers who enjoy real success in this arena will say, that you have to step up and trade for these vehicles.

So how do you go about educating your personnel? One dealer friend, in order to ensure his personnel are in tune with the market, routinely takes both his new- and used-vehicle managers to auctions to watch the lanes where these lesser expensive vehicles run.

Another friend attends a major auction's night sale featuring older vehicles each week. He consistently remarks how amazed he is to see the prices some of these older vehicles are bringing.

So, if our used-vehicle study represents reality (and I strongly maintain it does) then a high percentage of your strongest competitors' used-vehicle sales are coming from an inventory with a cost basis of less than $10,000 and, they are making good grosses on them.

To recap:

If we can't buy these cars and trucks at auction, then we must step up and trade for them. That, in turn, translates into increased new-vehicle volume and gross. Moreover, studies have shown the lesser expensive used vehicles turn more quickly, which equals increased investment capital. Hum!

This is not just a theory. It is reality and an opportunity for your operation to increase both new- and used-vehicle volume and gross.

Good selling!

Tony Noland ([email protected]) is the president and CEO of NCM Associates Inc.