The new adage in the used car business is to buy a lot and sell fast. As one industry expert has stated, “Margin compression in used car operations means dealers must disrupt old practices that result in high vehicle acquisition costs and slow time-to-market speed.”
One way to improve acquisition volume and vehicle quality is to source inventory internally. This means not only sourcing trade-ins from existing customers and service lane customers, but also outright buying cars from consumers, alas having a buy center.
Establishing and growing a high-profit used car buy center within your franchise dealership that acquires used cars from private sellers and moves them quickly through (retail) or off (wholesale) the lot is proving to be a competitive growth strategies for many dealers.
Internally sourced units save auction fees and transportation costs, an average gross savings of $600 to $800. These vehicles are typically newer with mileage lower than auction candidates and they don’t need as much reconditioning so they’re frontline ready faster. Simply put, buying from consumers is more profitable.
Why then are the majority of dealers reluctant or hesitant to go this route? If dealers are looking to grow market share and improve profitability, why do so many balk at a method or strategy proven to be more profitable?
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Cop Outs and Excuses
Many dealers will tell you that buying from consumers is difficult and not worth the time and effort. Many will tell you they don’t have time to find the right vehicles or reach out to the private sellers. Many will tell you they don’t have the people or process to private sellers trying to sell them their car.
But these are really excuses. The question is, excuses for what? Not becoming more profitable? Not growing the business?
My father always told me to “follow the money” whenever you’re trying to understand is motivating someone to do (or not do) something. Time and again when you look under the surface you’ll find that people change course or stick to what they are doing because it’s benefiting them in a monetary or material way.
When it comes to auctions, I believe some dealers are attached and in love with them. Car auctions seem to have a way of luring and keeping wholesale buyers in a non-evolving state of complacency that, mind you, are eating up your profit.
Auctions give buyers and used car managers a chance to get out of the dealership, do some dealing, have lunch, loiter with comrades, you name it. It’s where the action is. There’s plenty of perks that go along with keeping the auction a vital part of the acquisition strategy, which may very well have a lot to do with why so many buyers aren’t eager to let them go and replace this source with alternative approaches.
Take a hard close look at your used car operation.
- What percentage of vehicles come from vehicle trades through and equity mining in the service lane?
- What percentage comes from auctions?
- What percentage comes directly from private sellers?
If you want to increase your profit and grow market share, adjusting the dials on these percentages to steer more business towards the ones that are more profitable is often a good place to start.