Are You Maximizing Gross Profit on Every Used Vehicle Sale?

08 October 2019

Is it surprising that used car grosses have been on a steadily declining over the past 5 years? The root of the problem is that dealers have more or less accepted this fact and are conditioned to believe that it’s tough to change and improve.
But what if auto dealers could measure every vehicle’s interest index rate and compare that to the current cost to market value - this metric measures the spread between the acquisition cost of the vehicle and its prevailing retail price point - for that vehicle?

1. Understanding the Problem

If that could be done, dealers would know exactly when the demand for a vehicle is on the rise or begins to fall, and then adjust the deals.

On the other hand, maybe it isn’t a pricing issue at all, but more of an advertising problem if that vehicle isn’t getting sufficient exposure.

If you had that information early enough, you would have better strategies than just lowering the price to increase exposure.

2. Valuation is Key

It’s fair to assume that the majority of today’s trade-in customers have spent time researching the value of their vehicle. They have a number in mind when they arrive at your showroom.

Many dealers now embrace this customer due diligence as part of their appraisal process using data from third party sources. The customer is less likely to object to the third party valuation and, if they do, the third party number typically allows a dealer some breathing room to step up if necessary.

3. Balance the Bonus

Increasing factory bonus for dealerships that meet sales targets means the risk of stepping up on trade-ins is correspondingly higher as well.

This can be avoided by adding the bonus money to the pool of gross profits they use to pay new and used vehicle sales managers, or by using the bonus money to offset specific instances where a used vehicle’s profit potential suffered.

It is data science. And without it, you may be leaving some gross on the table.

4. Monitor Appraiser Performance

There are two key benchmarks dealers use to manage and monitor appraiser performance.

First, they examine each appraiser’s percentage of appraisals that result in deals.

Second, the appraiser’s average cost-to-market percentage reveals whether an appraiser is consistently offering "on the money” appraisals.

These two metrics ensure appraisers meet dealership-set objectives to keep more trades and ensure their retail profit potential.

For more information on maximizing profits in used car sales, Contact Us.

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