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While looking over an upcoming conference agenda, I noticed a bullet point on a speaker’s agenda: Winning pricing strategies -avoiding the death spiral of pricing to market average.

This is a real concern, and one I address every day. The concern is that if everyone rushes to be a little more competitive, there will be no gross left in your used cars. One dealer after another will participate in a race to the bottom.

The truth is the used car market is much more dynamic, with lots more moving parts, than this simplistic view represents.

  1. If you pay no attention to the market, your customer base will be only the 10% to 15% of the market that doesn’t shop online.
  2. If you can stay ahead of the trends by using real data in real time, rather than historical data and outdated registration figures, you’ll be stocking less price sensitive cars – the ones in short-supply and higher-demand, right now, than your competition that is “living in the past”.
  3. Price isn’t everything (but it does matter)! On many cars, being in the ‘Competitive Range’ is enough to get your share of online traffic. Add in great merchandising and a good dealership reputation and you have a winning combination. But if you stock High Market Days Supply units that are dying on the vine at every dealer in town – and price those cars higher than the guy down the street – be prepared to see very little traffic, have aged inventory, and higher wholesale losses.
  4. Trend-followers will have trouble identifying the right inventory from the troubled inventory and make poorer decisions than the dealers that are staying ahead of the trends. Those watching the market will be moving to cars with more potential for a higher gross and identifying the trends much earlier.

The Real Used Car Death Spiral
comes from reduced traffic due to over-pricing. The higher you price the less traffic you generate. Then you feel that you must have a higher mark-up per car and make more gross per deal to make up for the short-fall… and you get even less traffic. Or you hide costs to the consumer in your advertising and eventually destroy your reputation… and you get even less traffic.

Make no mistake, living in the past is no way to succeed in the future.

Views: 773

Tags: based, market, pricing, vAuto


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Comment by on May 10, 2012 at 7:27am

@ Doug MacIver  some golden nuggests in this post for you from Ed, Keith and Ralph.  Type of Inventory is as important as price.  You can only manage what you can track, so you have to be able to report on your daily gross profit. Know your region market well and move your pricing often ( daily)  I know dealerships that play it straight as commodity and change prices daily. 

Let me also add my condolences to you on your loss, I will add this  You can only improve with change, Wisdom is knowing what to change and what to keep.  I am sure there are many golden nuggets of information from your Dad that you will always use.  Take comfort in knowing that there are so many out there to help you. 

Comment by Ed Brooks on May 10, 2012 at 5:51am

Doug, I'm saddened by the news of your father's sudden passing, yet heartened by your success. While your age may make it easier to adopt Velocity Management in your store, it's certainly not a requirement. What is required is a willingness to throw out a few of the 'Old School' practices and a realization that we need to adapt to how consumers are shopping today.

Congratulations on your success!

Comment by Doug MacIver Jr. on May 9, 2012 at 10:24pm
Awesome post! I'm 30 y/o and run our 2 independent lots along with my brother up in Canada. My father passed away suddenly in January leaving the stores to us. My father believed that vAuto (or programs like it) would force dealers into the race to the bottom. Prior to moving to our independent operation my family had a few franchise stores. My father had always been the buyer and bought 100% off gut and using Black Book. I have only been in the automotive industry for roughly 2 years, and havent had my mind polluted by "old fashion" thoughts or techniques. After my father passed, it was decided that I would take over the buying. As mentioned, my father bought on gut... I had no gut to go on... We signed up with vAuto to help guide me in my stocking decisions. My father always spoke of gross and how it's made when we buy, rather than when we sell. This system doesn't tell us to be the cheapest in the market, but it helps us be in the game. And as mentioned when you have competitive pricing, a great site, great pics and videos and a great reputation, it's a lethal combination. Since starting in February I've taken our turn from just over 4 to just under 12.5. Our average days in stock has gone from 108 to 29. And our gross has actually gone up! I spend countless hours tracking down inventory and with this system it always us to have the inventory the public is searching for. As long as I don't overpay at the time of purchase, and stock low market day supply vehicles, there is gross to be made (and made fast).

It warms my heart to know that there will be a long list of dealers who will feel that systems like vAuto will ruin their stores. Many of them are the same dealers that think chat on their website is stupid, and full page "HUGE SALE" ads in the paper will always drive customers to their showroom.
Comment by Karla Pincott on May 9, 2012 at 4:25pm

This is exactly a point we were making to our Dealer Advisory Panel here in Australia. Today's  consumer is highly connected and getting very search-savvy.

Comment by Ralph Paglia on May 9, 2012 at 1:37pm

I attended a web based demo of RedBumper today, which is software from the minds that created AAX back in the early 2000's before Vauto existed.  It was a fascinating look at thinking around used car marketing strategies like what Ed's post is about.  One concept i really like, and have for awhile, is the concept of "Gross Profit PUVR Per Day", which really takes a look at the balance between inventory turn and gross profit PUVR.  selling 10 vehicles in 10 days at $1,000 Profit PUVR is $1,000 per Day average Profit Per Day, selling 1 unit in 10 days for a $2,000 Profit is $200 per day.  You get the idea...

Comment by Ed Brooks on May 9, 2012 at 1:19pm

Rick, We have a tool named Provision that answers many of these questions. I'm loath to "self-promote" too heavily here, but feel free to click the link or contact me for more info.

Comment by Rick LaCour on May 9, 2012 at 1:11pm

What are some tools that can be used to help decide what those units are?

Comment by Keith Shetterly on May 9, 2012 at 1:06pm

Let's know what Ed means by "traffic", by the way.  As in nobody shows up at your dealership. ;) Great post!

Comment by Ed Brooks on May 9, 2012 at 12:49pm

David, There are certainly pre-owned cars with a high Market Days Supply (MDS) that can (and probably should be) stocked, IF they can be bought right and priced right. These cars require an additional attribute: Volume. They need to be selling in fairly high volume in your market.

It's all about, as Ralph said, keeping a finger on the pulse of the market and staying ahead of the trends.

Comment by David Ruggles on May 9, 2012 at 12:08pm

A high days supply unit can be turned into a fast moving unit with aggressive pricing and compelling payments.  Paying top dollar for a slow moving unit doesn't work.  If they can be bought cheap, and offered cheap, they can become winners.  An example was when the Olds Intrigue was being phased out they could be purchased at really low prices.  The residual value guide didn't devalue them as much as the current wholesale market did at the time.  Some ridiculously low payments made these high gross fast movers for dealers who recognized the opportunity.  There are always "contrarian" plays for those who know where to look and how to market.

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