Clinching a sale often pivots on a customer’s trade-in. And while the exact number of vehicle sales that include a trade aren’t tracked in the industry, NADA members report approximately 65.6 percent of used vehicle inventory comes from trade-ins on new and used vehicle sales. It isn’t a stretch to infer that half of dealer sales involve a customer trade.
With so many sales hinging on a customer’s trade, there’s potential for mistakes to happen. And regardless of what mistake is make, there is one thing that remains constant: it hits the dealership’s bottom line.
Appraising Over Fair Market Value
New vehicle sales have begun to slow in the third and fourth quarters of 2018. A bid to ‘buy the deal’ in which managers offer more than a trade-in is worth can secure a customer’s new vehicle purchase, but at a price. The used car department is saddled with a vehicle with limited options – retail it with little to no profit margin, hope for a sale at a higher asking price, or sell it at auction for less than the trade value.
In general, every penny the dealership overpays for a trade comes out in the wash once the trade-in is dealt with.
Appraising Under Fair Market Value
An ever-present temptation for sales managers is to offer well below fair market value for a customer’s trade. It’s an excellent tactic to avoid buying unwanted used car inventory as well as purchasing inventory with more room for profit.
However, this practice does more than drive potential sales to dealers who will offer a fair price. It damages the industry’s image as a whole, reinforcing the stigma that dealerships aren’t trustworthy.
Berating the Customer’s Trade-In
In an effort to buy a sales customer’s trade right, used car sales managers often point out flaws that bring down its value. That’s certainly an acceptable practice within reason, however, it shouldn’t get emotional. A customer that feels like the dealer is being unreasonably harsh and feels insulted about their car is both unlikely to complete the sale or present a positive picture of the visit to family and friends.
Valuing a Trade Sight Unseen
A dangerous practice for used car appraisals is assigning a value without physically seeing the vehicle. In the market today, online trade-in appraisals are widespread with CarMax, KBB.com, and NADAguides.com offering quick and easy valuations.
But basing payments and pricing on online valuations sets up the transaction for frustration and failure. Customers whose vehicles are over-estimated on the online pricing experience disappointment when the dealer can’t or won’t maintain the trade-in value. Or, the dealer feels pressured to maintain the value and lose hundreds or thousands on the deal.
High dealership employee turnover rates can force unseasoned salespeople into managerial positions such as the used car manager’s chair. Without extensive training and experience, there’s bound to be trade-in appraisals that are unknowingly high or low. It’s different than a conniving manager attempting to lowball a customer or a manager desperate to pad a deal, but the damage is the same.
Most often, the result of mistakes in the trade-in process cost the dealership the sale or negate the profit from the new car sale. General managers should be careful to train their used car managers to fairly and accurately appraise every trade-in. The risks are great: damage to reputation, and to the bottom line.