Take 19 years in the industry, 25+ weekly meetings, and nearly 1,500 price changes weekly and you learn a few lessons, understanding the pulse of the evolving retail market for used cars.
Low Mileage Budget Cars do not Work
Budget cars are typically rental cars priced to accommodate those seeking a vehicle based on price or a budget. Referring mainly to late model Malibu’s, Altima’s, Focus, Fusion’s, Chrysler 200’s, Accord’s, Camry’s and others . Some Managers will try and buy the above models with features and miles that make them stand out in their marketplace. The problem, however, is that the dealer tends to pay more for vehicles with lower miles and stand out features. Thus, the pricing for the car ends up being more than the average comparable vehicle, which ends up adding that vehicle to the aged units list.
One of the biggest problems with this buying philosophy is that hundreds of vehicles nationwide end up sitting on the lot becoming aged inventory. The budget customer does not pay for the low miles if it does not fit their budget. There are also many banks that will not allow the customer to pay $20 more a month (or $1000 more) for 2014 with 21, XXX miles (low miles) than one with 35, XXX (market average miles) miles. Miles and Features do dictate the average pricing for the budget car. The manager has to price the car based on average market value.
The Online Black Hole in Exposing Higher priced High Volume Vehicles
Higher priced, high volume vehicles, for example, would be late model pickup trucks and SUV’s. When customers go online shopping for a Ford F150 putting in a budget of $35,000-$40,000 – there might be eight pages of listings. AutoTrader and Cars.com will default to sorting that list from highest price to lowest. So if you are priced at $40,000 or very close to 40k your truck gets exposure because you will be on the first page or two of the listings. But as this truck ages and you start dropping the price you start falling further and further down the page(s), which greatly reduces your exposure like this example below:
If you end up at a price of $37,500 on the F150, the truck is now in the black hole of exposure. You are on page 4 of the listings, and most customers will only look at the first page or 2 of listings. From low to high or high to low. So if you are close to the $40,000 or the $35,000 range you will get exposure. However, when you end up in the middle of the price band, the exposure is significantly reduced. This is where spotlight ads come in handy to increase exposure. This can also be said on high volume cars that fall in the middle of any popular price band search, example $10,000-$15,000.
Wholesaling an aged retail unit too soon
Countless times I have talked to a used car manager about an aged car. And as soon as I do, they tell me “I just wholesaled it.” To which I ask them how much they wholesaled it for, and they tell me something like “$14,500.” I would then see that their last asking price was $16,000 – asking them why would they wholesale it for $14,500 if their last asking price was $16,000?
They would then ask me “what else should I have done? It was 70 days old, and I was already #1 in the market at 85% for two weeks.” I would tell them that they need to throw away the market data, and start pricing it until it sells or until you can get more at the auction than your current asking price. I would have much rather priced it at $15,000 getting a ton of exposure on the price point, and then take $14,500 in the lane.
Better yet, I would have rather retailed it at $14,500 or even $14,000 before wholesaling it for $14,500 because at least I might have a shot at a trade-in and F&I. Do not wholesale an aged retail unit until you tried to sell it for wholesale values. I know pay plans sometimes drive these types of decisions, but that’s another topic.
Ask yourself, are you wholesaling budget cars too soon? Are you taking advantage of price structuring for maximum exposure in the listing websites?