For many folks, March is the NCAA Tournament/“March Madness” month while for others, it’s the month of St Patrick’s Day and the ever-elusive “Luck of the Irish.”

If you look at the car business today, it has hints of madness. We are looking at the beginning of a multi-million used-car shortage and a 50% drop in lease returns.

As for “luck” — never discount it, but it’s not a plan. True “luck” is the result of a good plan and hard work on top of good timing.

Let’s work on a good plan. As always, concentrate on what you can control. You know the supply line of used cars at auction is going to be strained. You also know that your own lease return supply line will be reduced. You can’t control these facts. What you can control is your appraisal process and your own service department.

Appraisal process

We know that when you increase your “look to book,” you increase your new car sales. About 70% of worked car deals involve a trade-in. The only way to take in a trade is to sell a vehicle.

  • Trades outperform purchases 2-1. According to NADA, about 66% of actual used-car sales at franchise dealers are trade-ins. Only 34% were outside purchases.
  • Current inventory levels are 67% purchases and only 33% trade-ins.
  • Trades sell 10 days faster, and for $1,000 more profit.
  • 80% of wholesale losses are attributed to outside purchases.

Conclusion: If you know used cars are going to be hard to come by and you’ll have to step up to get them from auction, reduce the need to overpay for your worst performing inventory by stepping up at the curb — on your appraisals. Not only are trade-ins your best performing inventory – by far – but you’ll also sell more vehicles in the process.

Service department

Your service department is by far your best source of the highest performing inventory.

Homegrown inventory is:

  • The new inventory you sold at your dealership.
  • Which had the majority of its regular service and maintenance performed at your dealership.
  • That vehicle then gets traded in, returned from a lease or bought for inventory and now is for sale as a used vehicle at your dealership.

Homegrown is the fastest selling, most profitable inventory available today.

There is no crystal ball, but the best predicter of the future is the past. A vehicle with a good history of being well-maintained is exactly what today’s consumers are looking for. That history allows it to stand out in a listing, boosted by a quality description that explains the vehicle’s long list of service records.

So, what’s the plan?

  • Have a well-designed inventory acquisition strategy in place.
  • Have a notification process for when these vehicles are scheduled for service.
  • The goal needs to be inventory acquisition, not selling your service customers a vehicle. Don’t alienate your most loyal customers by over-pursuing them to buy a vehicle from you every time they need their vehicle serviced. If you play it right, studies show that these consumers will end up purchasing another vehicle from you 70% of the time.
  • The best performing used vehicles are 4–6 years.
  • The best performing CPO vehicles are 2-4 years old.
  • Both are only available through trade and service acquisition
  • You can greatly improve your inventory mix and reduce the amount of 1- and 2-year-old less-desirable vehicles.

Conclusion: Having a well-thought-out acquisition plan – and executing it daily – can help limit your dependency on auction purchases. Not only will it improve your inventory mix, but it will drive new-car sales as well. Ultimately, keeping your best customers in the family helps ensure your continued year-over-year sales growth.

So March is a little “Madness” and a little “Luck.” The secret to success is to have a solid plan that you execute every day with the things you can control!

–Just The Fax

By Robert Grill, Carfax Director of Partner Development

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