Although demand for new and used vehicles remained hot through the summer months, the deep-rooted effects of COVID-19 continue to have profit-eroding implications on many auto dealers who have been forced to acquire used inventory at bloated prices at auction.

Manufacturer delays and reduced inventory have all but decimated dealers’ ability to maintain new-car sales volume.  When they pivot to the used-car business, dealers are met with another source of headwind — wholesale acquisition prices are up to 27% higher than they were a year ago, according to data from Manheim.

Manheim also reported the mid-month Manheim Used Vehicle Value Index was 162.7 in October 2020, its second-highest value in history (August 2020 at 163.7) and a 16.0% increase from October 2019. With it reaching this level is it too high for dealers to remain profitable?

(Editor's Note: The Manheim index finished October at 161.9. For more information, see Auto Remarketing's reporting here.)

2020 created supply & demand havoc

The issue began early in the pandemic when automakers shuttered factories and closed dealers stopped the sale and trades of vehicles — drastically altering the natural flow of supply and demand. With fewer low-cost new vehicles to purchase, many consumers turned to used. And when fewer lease turn-ins and trades where happening, that forced a severe shortage of supply, creating high prices at auction.

Savvy dealers have been leveraging technology, social channels and new thinking to circumvent traditional auction houses and the higher-priced inventory that comes with it.

In order to exercise greater control over their inventory, dealers have realized they cannot place as much reliance on the manufacturer providing cars for them to sell, and many are beginning to pivot over to creative ways, social marketing, digital advertising and even fixed ops. 

Creative thinking combines with everyday advertising tactics

Today’s more progressive dealers are activating creative, new ways of sourcing used cars, like Facebook lead ads featuring “We’ll Buy Your Car” or “$1,500 Over KBB for Your Trade” messaging.

One dealer group of more than 30 rooftops deployed such a campaign in August and drove over twice the trade leads they were accustomed to, resulting in an abundance of used-car acquisitions.

Keyword search advertising on Google, Bing or other search engines may not be considered “cutting-edge” today, but it’s still a tactic many dealers fail to think of first in their fixed operations advertising strategy. By missing out, dealers could be losing low-hanging fruit to third-party vehicle maintenance providers, especially during seasonal occurrences such as AC work in the summer, or tires and breaks in the winter.

What’s more, today’s digital advertising technology allows for retargeting and ads placed ahead of video content on popular sites such as YouTube. The whole purpose is to capture more traffic for fixed ops business, not only because this is good revenue, but these customers represent a prime captive audience for potential sales and trade-ins once they’re in the waiting room.   

Finding used inventory through fixed ops

As used inventory has become harder to come by, savvy dealers are getting creative and relying more on their existing customer base to find inventory — and sell a new vehicle or two.

Service visits offer a great opportunity to get to know these customers, and plenty of sales resources and technology today can identify likely customers who have attractive vehicles prime for trade-in when they bring in for a service visit.

Equity-mining technology is valuable in these instances and can help dealers gain critical insight into the vehicle for potential acquisition value, as well as the customer for a potential new sale.

Additional goals, incentives and spiffs can boost team morale so that everyone involved in the process is rewarded when a service customer is turned into a new vehicle for used inventory, and a new sale.

With these tips and techniques, dealers gain more control over acquiring the right used inventory at the right price without relying on the manufacturer for inventory, nor the auction sites that have made vehicle profit potential more difficult during the pandemic. Regardless, even when supply and demand return to more normal cycles, the use of digital advertising technologies can put more power into the hands of each dealer and raise profit potential at the end of each month and year.

Lauren Donalson is senior director of national accounts for PureCars, which is sharing its latest COVID-19 Report for dealers here.