Most dealerships acquire used car inventory through the auction process, which can be painfully long and costly, squeezing your dealership’s potential profit margin. Consider, however, that the average dealership sees well over 10,000 vehicles pass through for appraisals or service every year. Each one of these cars represents an opportunity to acquire, at a much lower cost, quality vehicles that match the unique demographics of a store’s customer base.
Using existing “internal auction lanes” – appraisals and service – as replacements for traditional auctions makes good business sense. Let’s see why.
- Increased profit – If dealerships acquire, on average, 10 additional cars per month via appraisals, net profit soars by more than $250,000 annually.
- Inventory mix – Utilizing appraisals gives dealers the opportunity to purposefully acquire vehicles that are a close match to its “core” inventory profile as well as to secure a variety of vehicles informed by store sales data.
- Reduced administrative burden – Dealer personnel spend a lot of time on the auction process: reviewing pre-bid, monitoring, analyzing condition reports, arranging transport, test driving, detailing and processing paperwork. Using appraisals as an “internal” auction alleviates this administrative burden and allows buyers to focus on more fruitful outlets.
- Time on revenue-generating transactions – Task personnel with looking internally: review service logs and Craigslist for buy matches, examine missed appraisals and run reports through an equity tool to match front-line needs. These efforts lead to increased revenue by focusing time against acquiring vehicles that maximize revenue opportunities.
- RO Volume – No other area of a dealership sees the volume of vehicles as service. Every vehicle handled by Fixed-Ops is an opportunity to evaluate an acquisition opportunity to fill the inventory pipeline.
A conversion rate of three percent of service lane vehicles greatly impacts profitability:
|Annual ROs||3% Conversion||Per-Car Profit||Annual Profit|
- Visibility into f/e needs – The service manager is uniquely positioned to understand dealership revenue levers. With visibility into not only the vehicles passing through service, but also incentives, lease specials and sales goals, service personnel are well-positioned to begin a dialogue regarding a possible trade-in.
- In-depth knowledge – These are vehicles that may have been regularly seen and maintained by the dealership that sold the vehicle. All records are housed under one roof: sale, ongoing service, warranty-related items, etc. There is no guesswork regarding the vehicle’s condition with a well-maintained, dealer-serviced vehicle.
- Captive audience – Service customers are, by definition, transactional. As a result, there are a number of face-to-face engagements that are required to conduct the transaction. Each of these engagements is an opportunity to inquire about the customer’s current willingness to upgrade.
- Maximize Acquisition of “Core” – “Core” vehicles are models that sell fastest, most consistently and most profitably. These vehicles are prime remarketing opportunities, ensuring quick and profitable sales and reducing overall risk of wholesale losses.
- Cash flow utilization – Using internal auction lanes to acquire vehicles opens a dealerships’ cash flow, allowing focus on more profitable uses of capital: adding headcount, acquisition of core inventory, facility upgrades, etc.
The good news for dealerships is that increased profitability is available simply by taking advantage of the tools already on hand: using appraisals and service lane interactions to focus on acquiring core vehicles.
Dealers using integrated technology can avoid the low-profit, high-administrative-burden environments of dealer auctions. DealerSocket offers technology platforms that integrate with one another and surface the types of opportunities described throughout this paper.
Mark Lozano, Product Manager, Marketing | DealerSocket