It’s no secret to anyone that vehicle affordability issues continue to arise, and that means more customers are looking to purchase used cars. Here to tell us how the increase in used car demand will affect your dealership’s inventory, is Patrick Janes. Patrick is the director of wholesale management solutions and stockwave for vAuto.
Jim Fitzpatrick: Thanks so much for joining us, Patrick.
Patrick Janes: Thanks Jim, glad to be here.
Jim Fitzpatrick: Sure. Let’s kind of jump right in. What are some of the most common misconceptions about the current state of the auto industry?
Patrick Janes: Well, I think there’s no surprise that used car business is actually up when new car business tends to go down a little bit, unless we’re into a huge economic downturn. We saw more of that in the month of April. Used car sales were actually up 3% over last year, and the SAR is at about 39.5 million, which is a pretty robust pace. There’s even some that think it could go a little higher than that.
Patrick Janes: We’re continuing to see, and you mentioned it earlier about affordability, a shift from that new car demand towards the used cars.
Jim Fitzpatrick: Yeah, for sure. How is this affecting dealers?
Patrick Janes: Well, I think it’s a sourcing issue, is really what it comes down to. If my new car business is starting to soften, but I rely on about 25% of my business I get from auction, okay? About 45% of my business, or sourcing, comes from new car trades.
Those are the two big slices of the pie. If that slice that represents that 45% starts to shrink, guess what? I got to go to the auction and increase that slice of the pie if I’m going to continue to stay at pace with a really robust used car market, and not miss any opportunity.
Jim Fitzpatrick: Yeah, for sure. We’re talking to so many dealers recently, really since the first of the year, that have said we’ve shifted our focus from new vehicle sales to used vehicle sales, and we’re not going to chase some of these crazy stair-step programs that OEMs put out there and such, and really focus more on the profitability of the dealership, which by and large comes from the used car department, and of course service, and not so much the new car department. Have you found that dealers are moving toward more of a focus on used cars nowadays?
Patrick Janes: Yeah, absolutely. I think the challenge is how do they get there? Again, if I’ve got to have that inventory … So many dealers that I spoke to in the latter part of last year said, “I’m staying out of the wholesale environment, the auction environment, because I got plenty of trades rolling in.” Well, we even saw that in our vAuto statistics, that the appraisal activity started to weaken.
If there’s fewer appraisals going on, that means fewer opportunities to capture trades. Now they say, “Well, wait a minute. I got this really strong used car department, I want to be all in because I know where that’s the profitability is, but I have to feed the machine.” That’s a lot of the discussions happening right now.
The good news is, is that the supply in the wholesale market is actually pretty good this year. I think we’re looking at about 16.6 million units that are going to come into the wholesale auction space this year. Look at off lease activity, it’s a record year for OEM off lease vehicles. About 3.9 million are going to actually come in.
So there is some supply, where last year I think supply was fairly limited and so we really saw prices sky high, and that’s what kept dealers out of auction because they didn’t want to go pay those prices, and they were just going to say, “I’ll just trade smarter.”
Jim Fitzpatrick: With these dealers out there looking for different ways to acquire used cars, what are some of the tools available to dealers now that will help them?
Patrick Janes: Yeah, I’ve got my three keys to better sourcing that I preach all the time. One is, first, take some time to really think about your stocking strategy.
Patrick Janes: If I’m not getting enough trades, I really don’t know exactly what I’m selling and what I’m turning quickly, I have to actually go into other segments and other opportunities. So look at some market data to be able to identify where those opportunities are.
Patrick Janes: Through vAuto, we have our provisioning module, which actually shows you literally sales and registration data that is occurring in different price bands and segments. We encourage them to sit down, study, put a plan together.
Patrick Janes: Once you know what vehicles you want to buy, then use metrics which … We’re a house of metrics at vAuto. Market days supply, live market view, see what you’re going to be able to retail the car for, so you buy the car right. You don’t just buy a bunch of cars, you actually buy cars that you can turn with some margin.
Patrick Janes: Then finally, leverage the technology to go find those cars. That’s really what our Stockwave platform does. It allows you to cross auction search. We’re agnostic, we say. We don’t care if you’re looking for a car at Manheim, if you’re looking at a car at ADESA or EDGE Pipeline auctions, you have the ability with the software to look across all of those platforms and to be able to do some analysis and find cars in every wholesale space available.
Jim Fitzpatrick: You know, when you and I were running dealerships back in the day, this wasn’t even close to the way we would go about acquiring vehicles, right? For our lots. It looks like, and it sounds like, it’s really all about a technology play today for dealers to acquire their inventory.
Patrick Janes: Yeah Jim, my guy was Larry.
Jim Fitzpatrick: Larry, right.
Patrick Janes: That was my acquisition strategy.
Jim Fitzpatrick: You gave him a list and said, “Here, go buy these,” right?
Patrick Janes: Yeah. Like, “Larry. Hey, go buy some cars at auction.” “Well, what do you want me to buy?” “Well, I don’t know, we’re doing well with Ultima’s here lately, go buy some Ultima’s” There wasn’t a whole lot of … We didn’t look at data.
Patrick Janes: Larry was a great buyer, right? Because he had 20 years of experience. He lived in that auction and drank really bad coffee and wore shorts all the time, which really ticked everybody off. But that expertise, in the future, there’s so many more data points that we can look at to make better decisions.
Quite honestly, Larry can’t be in every lane and at every auction to find those cars. That ultimately, we feel, the cars you want are the cars that are at the wrong place, at the wrong time, at the wrong dealer guy, and he needs to get rid of that. But for my market, that thing could be a home run.
Jim Fitzpatrick: What’s also exciting about having this at your fingertips is that it doesn’t take the 20 year, 25 year, 30 year car guy to now be your used car manager, that’s going to be in charge of acquiring merchandise. You could put a kid that’s right out of college.
I mean, you take all of that hard work and knowledge of the industry and knowledge of the market and vehicles and such, and say, “Hey man, get in front of this computer right here. Let us show you how to work the software, and you too can be acquiring cars and we could be making very large gross profits on the vehicles that you bring in,” right?
Patrick Janes: I have a great story for that. I just had a conversation earlier this week with a dealer who called me, and said, “Hey, I lost my used car manager.” Typical used car manager had been there 20 years, or in the industry 20 years. He said, “With all this technology today, I feel like I got to do something different.” We talked about just really the responsibilities of what this used car manager should do.
The conversation we had was, “If you can find someone who can do the inventory management, who can use the data to acquire vehicles and understand this technology, the one thing that I would like you to do, Mr. Dealer,” I said, “Is don’t put them on the desk.” Because that is kind of a requirement, or a development, that is over time, right? Guys get really nervous, they want the right guy on the desk. It’s that star salesperson that they promote to become a desk man.
Jim Fitzpatrick: Sure, sure. A good closer.
Patrick Janes: I said, “The problem is, him being on the desk distracts him from being in that live simulcast in the auction. Being able to go through those vehicles, being able to analyze the cars and inventory, making pricing changes, making sure the merchandising stands tall. So if you can disconnect those, I think you’re going to have a technologically savvy and very effective used car manager.”
Jim Fitzpatrick: Patrick Janes, Director of Wholesale Management Solutions and Stockwave for vAuto, thank you so much for joining us on CBT News. Love to have you back, talk more about this. It’s always a hot topic in terms of inventory and the best way for dealers to acquire it. You guys have all the answers at Cox Automotive. I think a lot of dealers know that already, but keep up the great work that you do for dealers.
Jim Fitzpatrick: As I said, love to have you back soon to talk more about this.
Patrick Janes: My pleasure, thanks Jim.
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