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Chief sales officer at CarOffer
We are in a new era when it comes to dealership inventories, and everyone is searching for a better way to buy and sell vehicles. With rising interest rates and a depreciating pre-owned market, the likes of which we have not seen in a couple of years, late-model vehicles are getting harder to retail.
In this challenging market, dealers have limited options for managing aging inventory. How do you eliminate wholesale losses and manage turn in a declining market?
Here are a few tips I have seen top dealers and dealer groups use to not only get ahead but continue to be successful in the current market.
Trade market disparity
A powerful strategy is to exchange underperforming vehicles in your market for the exact units that you need and will perform at your store. By doing so, you can eliminate wholesale loss and manage turn in a declining market. Sometimes when you want to get rid of a car and get what you need, you cannot always do that at auction.
Far too many dealers fail to consider wholesale this way because the industry has conditioned them to think otherwise. Years of lost profits have led to the opinion that wholesaling is simply a loss dealers have to face. But how about maintaining your retail and wholesale gross profits by trading on market disparity — trading a noncore poorly performing vehicle for a core unit that will perform better?
Market disparity is the price differences that exist from one market to another. You can trade a car you have been unable to retail and is a poor deal in your market to another dealer in a market where it will sell well. In return you get a vehicle you can sell and is a good deal in your market. To be clear here, I am not talking about trading negative equity, but rather trading market disparity.
For a real example, take a Honda Civic. Right now, as I write this, in South Texas that vehicle retails for $8,500 more than it does in Lincoln, Neb. Why not use this to your advantage? Use market disparity search platforms to find dealers with a vehicle that you need and create a one-one exchange using market disparity to decrease the water in each unit and bring in a fresh core car that gets your sales team excited and picking up the phones. You are no longer forced to take that vehicle to the traditional wholesale route and lose a ton of money due to wholesale losses in this particular environment. Not only are you getting rid of stale underwater units, but you are also getting a desired replacement at the same time. This strategy can be a lifesaver for dealers in the current economy, help you gain peace of mind, and mitigate your wholesale losses.
Create a consumer buying center
You may be challenged by the fact that local consumers will not consider selling their vehicle to you if they do not intend to buy a vehicle from you at the same time. They probably do not yet view you as a local buying center for used inventory. They may also have the perception that they can get a better price for their vehicle elsewhere. It is time to change that message and consumer perception. Buying cars from consumers and getting your own inventory channels is the best way to future-proof your dealership right now.
View every vehicle as an opportunity
Many of you may think the best strategy is to source later model cars and stay away from older units that take more reconditioning time and money, aiming to bring the cost per sale down and nudge it in under $15,000 per car. That strategy is not always the best approach.
Brian Moody, the executive editor of Autotrader, was quoted in an Automotive News article (“Why dealers are selling used cars with 150,000 miles and beyond,” May 6) stating, “200,000 miles is the new 100,000 miles for a lot of people. … It’s completely common for something like a Chevrolet Tahoe or a GMC Yukon to have well over 200,000 miles and still sell for a decent amount of money.”
Every vehicle has a value. Some dealers refuse to make an offer if a vehicle is not appropriate for the retail lot. This is a massive mistake. A large percentage of consumers selling also want to buy a replacement vehicle. If the transaction does not immediately result in a vehicle sale for your dealership you have still acquired a valuable inventory unit that will result in either a retail sale or a wholesale transaction. It’s a win in either case and this drives valuable traffic through your doors every day.
Change your mindset to that of your competition —every wholesale vehicle could be a retail vehicle for an independent dealer. Independent dealers find buying trades from franchise stores a desirable thing to do and franchise stores have the credibility and infrastructure to create a highly lucrative consumer acquisition channel. You have the infrastructure and personnel in place to make this happen.
Give customers a fair value on their trade
Nowadays consumers are extremely educated and most know what their vehicles are worth. Some of their estimates are way off. You can get closer to real value and manage consumer expectations with good communication. However, do not try to offer thousands below wholesale values. You will immediately get poor reviews online and on social media and it will not result in your success. Taking advantage of consumers will only result in your downfall.
Don’t be that dealer who feeds into the poor perception many consumers have of car dealers by lowballing your customer trade values. Do not make them feel you are trying to steal their trade while lining your pockets. Be reasonable with your pricing and become the go-to place for consumers looking to maximize their vehicle’s value when they’re ready to sell.
In summary, with current market conditions, it can be tough for a dealer to catch a break, and you may feel as if you are underwater. Talking with dealers who are having remarkable success in this market, I have found that a few simple strategies can make a huge difference.
Article originally published by Automotive News.
Brian Finkelmeyer is the senior director of new-vehicle solutions at Cox Automotive.
My daughter and I love staring contests. Our rules are the same as everyone’s—whoever blinks first loses.
Lately, I’ve sensed a similar staring contest emerging in the new car business between consumers, dealers, and automakers. The question is who will blink first?
Before 2020, when dealership lots were overflowing with new-vehicle inventory, manufacturers were always quick to blink—offering bigger and better incentives to entice shoppers. Total industry incentive spend was estimated to be between $50-$60 billion per year. When holiday bonus cash and $179 lease offers didn’t move enough metal, the OEMs would blink again. They had Enterprise and Hertz on speed dial to unload excess inventory.
Back then, the automakers incentivized their dealers to blink with stair-step, volume-based sales programs. Consumers learned the best way to win a good deal on a new car was to keep staring until the last day of the month. Dealers would always blink when there was a $50,000 bonus check riding on the next unit sold.
But the microchip crisis changed all that. With demand far exceeding supply, average transaction prices have increased roughly $10,000 since COVID, hitting $48,681 last month. With incentives at rock bottom, it appears many consumers have just closed their eyes entirely as they signed contracts for new-vehicle purchases, with an average payment of $762 a month. The days of waiting until the last day of the month have turned into waiting 60 days to receive your pre-ordered new car.
After a two-year drought, dealer lots are starting to fill back up. Inventory levels are now up 77% compared to November 2021. Days’ supply has also climbed from 29 to 53. So, with inventory beginning to build and talk of an economic recession looming, the car companies must be ready to blink, right?
Nope: The car companies are staring straight ahead with no expression on their face.
The average incentive spend in November 2021 was $1,896 versus this November at $1,066. That’s a 43% DECREASE in incentives year over year. Many dealers have begun sounding the alarm of softening demand and the necessity for automakers to bring back better incentives. One dealer recently commented, “The sell ‘til the lot is empty party is over!”
But these same anxious dealers continue to post record new-car grosses in the $5,000-$6,000 range, including F&I. With grosses that strong, the OEMs are in no rush to bring back incentives—they’re waiting for dealers to blink first.
Why are the manufacturers feeling so confident? My sense is that their confidence comes from consumers, the very ones who continue to buy new vehicles absent any significant incentives. New-vehicle sales in November were up 10.8% versus the prior year; luxury sales as a percentage of the total industry continue to grow, hitting 18.2% of the market in November. With continued strong grosses and growing retail sales, the OEMs are in no mood to blink.
But here’s the hard truth. It’s highly unlikely that the industry can get back to the glory days of annual sales in the 16-to-17 million range when the average retail price is north of $48,000. For sales volume to grow, the average selling price will need to come down to expand the pool of potential buyers. Automakers and dealers should take note that Walmart recently outperformed analysts’ expectations in their grocery business, as more affluent shoppers steered away from traditional grocery stores to hedge against higher prices and inflation.
Not surprisingly, there are clear signs of softening demand for more expensive segments with rising days of supply, while affordable inventory segments remain tight. A quick look at the chart below shows that supplies are most constrained for $35,000 and below vehicles in compact SUVs, midsize and compact car segments.
Given all this, I’m curious to see who will blink first in 2023. Will the automakers blink and begin doling out richer incentives or a more affordable mix? Or will dealers blink, facing rising floorplan costs and decide it’s in their best interest to step back from selling almost every new vehicle at MSRP or above?
I’m not sure how this will all play out in the year ahead, but one thing is true: Until the consumer shows a willingness to blink, the automakers and dealers will be more formidable than my daughter at the staring contest.
The article was written by Brian Finkelmeyer the senior director of new-vehicle solutions at Cox Automotive and was originally published by Cox Automotive.
DETROIT – About 65% of Ford Motor’s dealers have agreed to sell electric vehicles as the company invests billions to expand production and sales of the battery-powered cars and trucks, CEO Jim Farley said Monday.
About 1,920 of Ford’s nearly 3,000 dealers in the U.S. agreed to sell EVs, according to Farley. He said roughly 80% of those dealers opted for the higher level of investment for EVs.
Ford offered its dealers the option to become “EV-certified” under one of two programs — with expected investments of $500,000 or $1.2 million. Dealers in the higher tier, which carries upfront costs of $900,000, receive “elite” certification and be allocated more EVs.
Ford, unlike crosstown rival General Motors, is allowing dealers to opt out of selling EVs and continue to sell the company’s cars. GM has offered buyouts to Buick and Cadillac dealers that don’t want to invest to sell EVs.
Dealers who decided not to invest in EVs may do so when Ford reopens the certification process in 2027.
“We think that the EV adoption in the U.S. will take time, so we wanted to give dealers a chance to come back,” Farley said during an Automotive News conference.
Ford’s plans to sell EVs have been a point of contention since the company split off its all-electric vehicle business earlier this year into a separate division known as Model e. Farley said the automaker and its dealers needed to lower costs, increase profits and deliver better, more consistent customer sales experiences.
Farley on Monday also reiterated that a direct-sales model is estimated to be thousands of dollars cheaper for the automaker than the auto industry’s traditional franchised system.
Wall Street analysts have largely viewed direct-to-consumer sales as a benefit to optimize profit. However, there have been growing pains for Tesla, which uses the sales model, when it comes to servicing its vehicles.
Ford’s current lineup of all-electric vehicles includes the Ford F-150 Lightning pickup, Mustang Mach-E crossover and e-Transit van. The automaker is expected to release a litany of other EVs globally under a plan to invest tens of billion of dollars in the technologies by 2026.
Originally posted by CNBC.
KEY POINTS
In the latest inflation reading, used cars are one of the few categories with prices that are lower than they were a year ago.
While the consumer price index — which measures price changes for a variety of consumer goods and services — was up 7.1% in November from a year earlier, used cars and truck prices posted an annual 3.3% decline. That compares to some categories that have kept climbing far above year-ago prices, such as eggs (49.1%) and airfare (36%). New car prices are 7.2% higher.
Despite sliding prices for used vehicles, they remain 33% higher than where they’d be if normal depreciation were occurring, said Pat Ryan, founder and CEO of CoPilot, a car-shopping app.
“It’s important to remember that prices are still grossly inflated compared to all normal market conditions,” Ryan said.
“In the new year, we can expect more substantial and accelerated price drops across the board, as vehicle inventory continues to replenish,” said Ryan, adding that dealers also are responding to consumers’ growing resistance to paying record-high car prices.
Demand in the used car market skyrocketed during the pandemic as supply-chain issues hampered automakers’ ability to produce new vehicles. However, the situation is easing slowly with modest improvements in inventory on dealer lots as rising interest rates put pressure on affordability.
While used-car prices are easing from their highs, the decreases depend at least partly on their age and the type of vehicle.
Used electric vehicles have seen the largest drop: The average price of $54,314 in early December is down 20% from a record high of $75,324 in July, according to CoPilot data.
For used hybrids, the average price of $43,574 is a 12% drop from the peak of $49,809 in July. For both segments, whose demand rose earlier in the year when gas prices were headed higher, an easing in gas prices also coincided with a decrease in demand for EVs and hybrids.
Among body types, SUVs and minivans have seen the largest drop this year. List prices for used SUVs average $41,468, down 7% from a peak of $44,824 in March. Used minivans are averaging $24,992, down 8% from $27,257 in March.
By age, 1- to 3-year-old cars come with an average price of $38,987, down 8% from a peak of $42,375 in July.
Among those 4 to 7 years old, the average price is $27,137, a 13% drop from the peak of $31,265 in January. And in the 8-to-13-year-old bracket, the average price of $16,601 is also down 13% from a high of $19,215 in April.
While prices are expected to continue sliding next year, some buyers may not want to wait.
“If you can pay cash now and avoid skyrocketing interest rates [on loans], this month is the best time to buy in over a year,” Ryan said. “With prices finally down year-over-year … and dealers eager to hit year-end sales targets, it could be a good time to negotiate.”
For most buyers, however, “our advice is to wait for the used-car market to finally return closer to normal levels in 2023,” Ryan said.
Originally posted by CNBC.
DETROIT – Wholesale prices of used vehicles reached their lowest level in more than a year last month, as retail sales decline amid interest rate hikes, rising new vehicle availability, and recessionary fears.
Cox Automotive said Wednesday that its Manheim Used Vehicle Value Index, which tracks prices of used vehicles sold at its U.S. wholesale auctions, has declined 15.6% from record levels in January through November. The index dropped to 199.4 last month, below 200 for the first time since August 2021, and is down 14.2% from the same month a year ago. It marks the sixth-consecutive month of declines.
The falling prices come as the availability of new vehicles steadily rises from historic lows, providing additional options for consumers and potentially better loan options from automaker’s financing arms.
“New inventory is finally starting to build, and that’s producing momentum in new retail sales, but that momentum appears to be at the expense of used retail. Especially it’s the traditional used car buyer that’s most impacted by payment affordability,” Cox chief economist Jonathan Smoke said Tuesday during an industry update.
Retail prices for consumers traditionally follow changes in wholesale prices. That’s good news for potential car buyers, however not great for companies such as embattled retailer Carvana that purchased vehicles at record highs and are now trying to sell them at a profit.
Retail pricing thus far has not declined as quickly as wholesale prices, as dealers attempt to hold steady on record-high pricing. According to the most recent data, Cox reports the average listing price of a used vehicle was $27,564 in October, down less than a half percent from the beginning of the year.
“They’re not wanting to sell at trough prices,” said Chris Frey, senior industry insights manager at Cox Automotive, told CNBC last month. “That’s why we’re not seeing the prices decline so much at retail.”
Cox estimates that used retail sales declined 1% in November from October and were down 10% from a year earlier.
Automakers for several years now have been battling through a semiconductor chip shortage that has sporadically halted production of new vehicles, causing record-low inventories of vehicles and higher prices. The circumstances pushed many new-vehicle buyers into the used-car market.
Cox last month estimated the total used market was on pace to finish the year down more than 12% from 40.6 million in 2021.
Originally posted by CNBC.
On the heels of giving many thanks and taking stock on all we are thankful for over this past Thanksgiving weekend; we begin to look forward to arguably the most magical time of the year.
December is typically a robust month for our industries, and this year is setting up to deliver another strong finish. Dealers are seeing a bit more inventory, used car pricing has somewhat settled into a comfortable position, and the recent rise in interest rates hasn’t seemed to slow sales as much as some anticipated. Dealers should consider these headwinds in their 2023 planning and forecasting.
Here are a few items which seem to be picking up energy in our recent conversations with dealers across the country.
As the team at ADS looks back on 2022 and the many successes we’ve had, we are proud to have the partnerships we have with so many dealers and industry leading providers. Without the resolute support of so many, we wouldn’t be able to be so focused on exceeding our dealer’s goals and objectives.
Merry Christmas!
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