Accelerate Your Success
Patience is a virtue, they say.
But the reality is nobody wants to wait.
That’s a universal truth about all things, really – long trips, love, dessert...
Many of those things are surely worth the wait. But wouldn’t they be better if that wait wasn’t quite so long?
Take success, for example. While everyone has his or her own definition of what that means, all of us would love to be able to reach it sooner.
What if you could accelerate your success?
What if there were tools you could use – ideas, techniques, strategies and more – that could accelerate your dealership and its operations toward your ultimate goal?
Good news. There are. And NIADA has them.
From the NIADA Convention and Expo and the NABD BHPH Subprime Conference to our Dealer 20 Groups, educational workshops, training schools and bootcamps, from online dealer compliance training to the acclaimed Certified Master Dealer course, NIADA offers the most effective and comprehensive dealer education programs in the independent space.
And there’s even more to come. Be watching for a new, comprehensive online training platform, set to launch this year.
All of those platforms have one aim – which, not coincidentally, happens to be our theme for 2019 – to Accelerate Your Success.
NIADA’s national publications – Used Car Dealer and BHPH Dealer (now a stand-alone bi-monthly magazine) are a big part of that theme, and of NIADA’s overall educational mission.
To that end, each month Used Car Dealer will focus on a particular area of your operation, offering ideas and insights to help you accelerate your progress toward your destination: success.
We begin this month with ways to Accelerate Your Inventory Acquisition through alternatives to the traditional auction, as well as a new metric that could make you re-think the way you look at inventory turn. Other issues this year will help you accelerate your social media, sales, F&I, service department and more.
All of it is designed to give independent dealers everything necessary to complete and succeed in today's quickly changing, ultra-competitive used car market.
It’s a simple rule of automotive retail: If you’ve got it, you can sell it.
Sure, a good salesperson can expand a customer’s consideration list and find a vehicle he might not have previously considered. But for the most part you’ve just got to have the type of car, truck or SUV people want to buy.
As simple as that sounds, the concept and practice of vehicle inventory acquisition is anything but simple. It’s a complicated part of the retail world, chock full of risk and the unknown.
“The bottom line for the independent dealer today is that it all starts with buying the right car at the right price,” said Justin Osburn, moderator for NIADA’s retail 20 Groups and instructor for the acclaimed Certified Master Dealer course.
“It’s a tremendous investment to buy inventory. That’s what those vehicles really are – little bundles of money sitting on the lot.”
BUNDLES OF MONEY
The money in those “bundles,” Osburn said, includes not only the price you paid for them, but also the price you paid for the process of that acquisition.
The loss of a person from the dealership for at least a day, for example. All the time spent doing research, and traveling to the auction, and much more.
Don’t forget, as well, the reality that most dealers will only get a fraction of the vehicles they’re seeking at auction – such is the nature of the auction game. As a result, the idea of buying cars at physical auctions – while still relevant and necessary – faces a crowded future competing with many new and mostly digital alternatives.
It’s an evolution of perhaps the industry’s most critical and complex function, and one driven by the allure of efficiency.
“The idea that a dealer might not have to get in the car, drive 100 miles, prepare for six hours working on a run list the night before and go to auction all day to buy one car – that’s the attraction,” Osburn said. “Dealers are trying to decrease their time spent acquiring vehicles, while broadening their availability of cars.”
A BALANCED APPROACH
Does it sound like the lane is doomed? If so, think again, because auctions remain a crucial part of any acquisition strategy.
“For one, independents still rely heavily on physical auctions,” said Patrick Mendoza, director of corporate communications for NIADA National Corporate Partner DealerSocket.
That’s borne out by NIADA’s most recent survey of its 16,000 members,
which found almost 84 percent of them purchase some or all of their inventory from auctions.
But as crucial as auctions are to acquiring inventory, they are not the only source.
In fact, for CarMax, America’s largest used car retailer, physical and digital auctions play second fiddle to consumer trade-ins.
According to its 2017 annual report, CarMax’s No. 1 source of inventory was vehicles acquired directly from consumers, followed by auctions (local and online) and an array of wholesalers, dealers and leasing and rental companies.
Cars from consumers that are too old to sell at CarMax are sold at the company’s own dealer-only auction. CarMax moves some 390,000 older vehicles every year to local dealers.
While CarMax’s operation is far from a typical dealership, it does represent a concept all dealers can learn from – a balanced approach to vehicle acquisition that takes into consideration cost, market, quality and availability.
Those are issues that often drive decisions for all dealers – especially cost.
“Retail margins are at an all-time low right now. At the same time, the Manheim price index is at an all-time high,” said Bruce Thompson, CEO of Pearl Solutions, a new NIADA National Affinity Partner whose technology, Pearl 360, helps dealers acquire vehicles directly from consumers and manage the process.
“Something must give when the average auction fee last year was $450, plus at least $200 in average transportation expense.”
Thompson said the rising cost of auctions is a key reason why alternatives like his company are finding fertile ground.
“Dealers need to establish a new, more efficient source of inventory,” he said. “I think the best route is to buy directly from the consumer.”
That’s one part of the emerging reality of inventory acquisition: choice and balance.
While auctions aren’t going away, they are now just a part of a strategic approach.
That’s scary for many independent dealers, who are resistant to online auctions and other alternatives simply because they are the unknown.
Many are used to walking around cars, looking at the interiors and getting that all- important sense of sale-ability. They feel they just can’t get that from 32 photos.
And they see idea of investing in new platforms – without fully knowing whether they operate as advertised – as risky, and they worry about taking the time to learn new technology.
But Manheim vice president of offsite solutions Derek Hansen sees digital technology as a solution to the “being there” need many dealers have.
“It is changing and there is growth, and we’re seeing that change accelerate,” Hansen said. “Recently, we’ve unlocked that digital channel to allow dealers to get a better understanding of the condition of the vehicle and to be able to inspect it as if they were there personally.”
Hansen, who is focused on digital alternatives to the physical lanes, said in addition to digital convenience, trust and assurance are big factors – issues that could well be solved through more advanced technology and consistent guarantees and policies.
But even online auctions, while solving the problem of the resource drain of attending a physical auction, still have issues.
For example, dealers don’t often get everything they want – or need – at the auction. And bidders often drive up prices, damaging the profitability of the vehicles.
It’s simply a hard way to build a winning hand of in-demand vehicles.
Trade-ins represent perhaps the best and most economical way to replenish inventory, and auctions are a powerful source.
That said, there are plenty of auction alternatives emerging now that all dealers should consider in developing their acquisition game plan.
Sales teams should already be sourcing vehicles at the service drive. Customers coming in for maintenance or repairs are an opportunity to see if they’re ready to move to a newer vehicle, while selling you their old one. Online auctions save time when compared to visiting the physical lanes. Dealers can acquire vehicles from consumers in a couple of ways – direct advertising to consumers offering to buy their cars and data-mining to identify current customers with enough equity to get out of the vehicle they have and into a new one for about the same monthly payment.
Thompson said Pearl’s platform generates 50-70 consumer bid requests per month.
“What really has surprised us is that more than 95 percent of customers who go through a 7-10 minute condition report process are also interested in a replacement,” he said, and that can be a win/win for the dealer.
Other options include buying from rental car companies and dealer-to-dealer auctions such as TradeRev, a digital vehicle appraisal and auction system that allows dealers to put trade-in vehicles up for bids from other dealers online in real time.
Hansen sees dealer-to-dealer off-site selling as a major growth area.
“Many dealers are now willing to list that car digitally, on their lot, and sell that car to dealer buyers without that car ever visiting an auction,” he explained. “Now it is often the most efficient way when we talk about dealer time and the effort of managing the process – especially when we talk about holding and transaction costs.
“Increasingly, they are using it as the most efficient way to transact in the marketplace. Margins are being compressed and dealers are looking for ways to drive profitability. Where wholesale provides that is in being more efficient through the process.”
BRING SOLID BASICS TO YOUR ACQUISITION APPROACH
Whether alternative approaches are better, that’s subjective and dependent on your needs.
One thing, though, is certain. There are many new ways to source inventory, some better than others but all dependent on your sales needs and approach.
The first step is to build a simple strategy that’s aligned to your budget, sales approach and volume needs.
For example, dealerships that use a higher volume approach to sales need greater availability to vehicles, while a more deliberate approach requires a more selective source of vehicles.
“Whether you have a volume model, a gross profit model or a balance, you still have to have to buy the right cars at the right price,” Osburn said. “You still have to have the basic structure in place.
“Have an inventory pricing strategy. And you’ve got to know your costs, such as holding and reconditioning costs.”
That might seem obvious, but Osburn said he’s amazed by how many dealerships don’t have a pricing strategy.
“Dealers have to stop buying cars based on what they think will sell and what they think the customer wants,” he explained. “Instead, look at data to find out what really is selling and holding gross.
“No matter what platform you’re using, you’ve got to know what vehicle you’re trying to buy and at what price. The influences the decision of what to buy, and how.”
HELP WITH ALTERNATIVE SOURCES
There are choices out there.
Outside of the traditional lane and even the online auction, the evolution of retail technology means plenty of new platforms are popping up.And almost all seem to have one thing in common: getting around the middleman as dealers work directly with the wholesaler.
As Mendoza noted, any and all channels are in play when it comes to inventory sourcing.
“From trade-ins and physical and online auctions to running buy-back ads on Facebook and incentivizing salespeople to work Facebook Marketplace and Craigslist, there are many options,” he said.
“That said, though, I think smart dealers know which auctions or sourcing channels best meets their goals and the needs of their market.”
When it comes to online auctions, Mendoza suggested talking to dealers with experience with a particular online auction.
“They’ll tell you how to translate how a condition report scores a vehicle,” he said.
Hansen counsels dealers to first know the vehicles that suit their business plan.
“Do your homework – know the makes and models in your area you are best positioned to retail,” he said. “Tap into all the channels available to acquire those vehicles – just make sure you account for the economics of your model, such as recon costs and transportation costs.
“Using those digital channels opens your store to so much more from an available inventory perspective. Traditionally, buyers went to their two or three physical auction sales in a week and would highlight 10 to 12 cars – and get maybe two. They’d piece together four or five cars for the week and head back.
“The world has changed so dramatically. Once you know your market days’ supply, you now have 24/7 access to inventory.”
CONSISTENCY WINS THE ACQUISITION RACE
Osburn said dealers should stay with their bread and butter.
“You can’t stop going to all the auctions, but you should begin to search out other acquisition opportunities,” Osburn said. “Test them a little. Explore other options while having a safety net of doing what you’re doing.”
The most important thing, he added, is to know the platform. Understand its parameters and policies. Be well-versed in return policies so, for example, you know how it rates cars and who pays for shipping.
Mendoza agreed the more educated a dealer is, the less he winds up with bad buys.
“As the old saying goes, it takes 30 days to get into an inventory problem, but it takes a minimum of 90 days to get out of it,” he said.
“Online auctions are a part of every dealer’s inventory sourcing strategy. The one concern is condition reports, especially when it comes to older, high-mileage vehicles. They’re just not consistent from auction to auction, though most online auctions are working hard to solve that issue.”
A big part of that acquisition education, Thompson said, is the revenue component.
“Money is really made at the point of acquisition,” he explained. “If a dealer is paying too much at auction, and then paying fees, the margin expectation is muted.”
Thompson suggests dealers adopt a hybrid of the CarMax approach by establishing a “buy from consumer” channel and supplementing it with auction units.
“Then, when dealers buy a vehicle from a consumer that’s not a retail piece, they can also quickly wholesale it.” Hansen’s view of the future of inventory acquisition is clear.
“It’s digital, digital, digital,” he said. “Using the data and analytics from digital channels, using improved technology for disclosure and imaging, and using the digital marketplaces to bid and buy – especially offsite vehicles that don’t have to transport and incur additional cost.
“To me, that’s where we will see continued growth and transition in the market. We are up 72 percent year-over-year from a dealer offsite perspective.”
But before you jump into those digital opportunities, do a little research. Talk to dealers at 20 Groups, Facebook Forums and other opportunities, Osburn said, to get the lowdown on their experiences.
Ultimately, Osburn said, the key is to know your pricing strategy, your costs and the market. Then you can then pick the source that best delivers the vehicles customers want to buy based on data and analysis.
Most of all, it’s about balance, and optimizing the four aspects of acquisition: cost of the transaction, fit to your market, fit to your inventory plan and quality of the unit – and its timely availability.
Whether that’s through an auction, an ad, a trade-in, a consumer-to-dealer sale or a dealer-to-dealer marketplace matters less than having happy customers who bought at a fair price.
to the Auction The auction is a tried and true way of acquiring used vehicle inventory.
But it is far from the only way.
There are numerous other methods available to help dealers stock their lots that can help them find vehicles that are in demand in their market while saving money on auction fees and transportation costs.
Here are a few options:
Advertising: Many dealers are aggressively advertising directly to consumers in their markets that they buy cars, offering appraisal tools and sales convenience. That’s particularly effective when it comes to finding specific vehicles. Vehicles that are not lot-worthy are sold at auction.
Customer-to-dealer: Technology has spurred the growth of customer-to- dealer networks, where customers sell their vehicles to dealers. Pearl Solutions offers a platform designed to facilitate this flow of vehicles and manage the process.
Data mining: Data-mining technology can sift through the dealership’s current customers to find those with enough equity in their vehicle to be able to purchase a newer or nicer one for about the same monthly payment. The dealership can then send targeted marketing messages to those customers to entice them to come in and make the deal – with the trade-in. Dealer-to-dealer: A good resource for older cars and a great way to avoid high auction fees. Dealer-to-dealer sales have recently taken on added relevance, thanks to technology. Dealers can now source cars from virtually any lot with the right platform. TradeRev is an example of a dealer-to-dealer platform that offers more selection across a broad area.
Fleet car companies: While these vehicles are sometimes abused by
car renters or employees, they are generally well maintained and can offer an opportunity to acquire late model vehicles. Note, however, that these cars might have higher mileage than the average for their model year.
U.S. government: Believe it or not, the federal government can be a good place to source vehicles – and it’s increasing in popularity. Generally speaking, quality is not high, but the prices are good.