It’s decision time, crafting a long-term plan versus making short-term gains.

First, we need to look at our “short-term gain” decisions we made back in 2020.

New cars were at a premium that year, and many dealers decided to “make hay while the sun shines” so, according to NADA, as a result, the new per-vehicle gross profit by 22% nationally.

That was then. Today? The supply of new cars is up, and in many cases back to pre-pandemic levels. We know that means the future will include additional incentives and competitive pricing.

Meanwhile, used-car values are trending down. The increase in new-car incentives and lower selling prices will put additional downward pressure on used vehicles for the near term.

That all means that we’ve put our best, most loyal customer in a very tough spot. How? Once again, unlike the last time they bought, there are new cars readily available — and as part of their normal trade cycle that we include in our sales forecasting, that will bring them back to our dealerships.

That’s usually a good thing. In fact, that’s how we stay in business. However, this time, based on those 2020 decision, they are the proverbial “upside-down” customers. Even if they paid cash or did only a short-term loan, they’re about to be informed their vehicle is worth quite a bit less than they had anticipated, based on the premium they had to pay when they bought it.

Here’s the decision we need to make:

What’s more important? Do we try to make another home run sale at the risk of alienating our loyal, returning clients? Or do we make customer retention the priority, and do what we have to in order to keep them in the family – and coming back?

If you decided to go the first direction, good luck with that. I’ve got nothing for you.

If you take the second path, here’s some advice for what may be the biggest challenge you will face. When you go to appraise these trade-ins — “throw the book out.” If you appraise simply with a wholesale value based on the Year, Make, Model and mileage, and aiming for the margins you’ve been making the last few years, you won’t have much success.

Instead, recognize that these are your best, most loyal customers. Their vehicles are:

  • Well-maintained (mostly serviced at your dealership)
  • One-owner
  • Just 4 to 6 years old
  • In the right colors
  • With the right options

This is the hard-to-find used car inventory that you’ve been begging for the last 4 years.

The right answer: Step up. These are not the vehicles you’ll get hurt on. The smartest move would to OEM certify them. Price them to the right retail amount from Day 1. Time is not your friend. Sell them in the same market window you traded for and DO NOT let them age.

The No. 1 goal? Keep them in your customer base!

–Just The Fax

By Robert Grill, Carfax Senior Partner Development Manager

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