For the past few months, I’ve been monitoring dealer used vehicle inventories through vAuto’s new Provision inventory management engine, which assigns letter grades to prospective vehicles a dealer might acquire.
An eye-opening finding: It’s very rare for the “perfect used car” (or one that has an “A” grade or better) to appear on a dealer’s recommended buy list. Instead, the vast majority of recommended vehicles receive “B” or “C” grades.
At first, I found this disturbing. How is it possible that, at any given time in any given market, there isn’t a “perfect used car” or “A-grade” vehicle out there for a dealer to acquire?
Then it hit me. It’s a fallacy to believe there are a lot of “perfect used cars” if one applies an honest, objective and realistic assessment of a vehicle’s ability to perform at retail. In fact, that’s what today’s technology and tools can do for dealers—they ensure you see each potential acquisition for exactly what it is, a mix of strengths and weaknesses, opportunities and risks.
I believe this is a profound development for our industry. In the past, we’ve relied on an individual’s judgment about the vehicles that would be “right” for a dealership and perform the best at retail. But, as we’ve seen in recent years, this individual’s ability and knowledge only goes so far, and it’s prone to biases toward specific vehicle brands and models. The end result is often missed opportunities and risks, both of which can be costly for dealers.
Similarly, this individual’s judgment, no matter how good, likely cannot keep up with all of the constantly changing market factors that can affect a vehicle’s ability to perform at retail and achieve a dealership’s profit and sales objectives. (At vAuto, the Provision system measures seven key attributes that drive a vehicle’s likely retail performance, and those are distilled from an array of real-time data feeds on market conditions and dealership goals.)
On its face, the realization that the “perfect used car” is a rare bird may seem like bad news for dealers. I would contend, however, that the opposite is true—in fact, this is the best kind of news for the following reasons:
1. Near-elimination of “gotcha!” vehicles. With today’s technology and tools, dealers can now see with absolute clarity the precise strengths and weaknesses a specific vehicle brings to the table. In effect, this means there should be no real surprises for those who pay attention to what the market data and intelligence tells them about vehicles they may choose to acquire. In turn, this should reduce, if not eliminate, the prospect of “gotcha!” vehicles becoming part of a dealership’s inventory. (A caveat: Dealers must remain vigilant about a vehicle’s retailing prospects once they’ve acquired it. Today’s dynamic and volatile market can change on a dime and negatively affect a unit’s retailing performance.)
2. More astute retail merchandising. If a dealer knows a vehicle’s strengths and weaknesses before it’s acquired, he/she can craft a merchandising plan that leverages the unit’s positive attributes and mitigates the negatives. For example, if a dealer knows a vehicle faces stiff competition from similar, competing vehicles in a market, he/she might opt for an aggressive price or more prominent online visibility/placement to stand out from the pack. Or, if the data suggest a unit may have trouble meeting a dealership’s profitability goals, the dealer might look for accessories or other add-ons to boost its profitability potential at retail.
To me, this breed of market-attuned, vehicle-specific merchandising is far better suited to today’s marketplace than the traditional approach of buying a vehicle, applying a standard mark-up from the wholesale price and waiting for a customer to come along and express interest. Even better, today’s technology and tools help make the job of crafting a vehicle’s merchandising plan easier than it’s ever been, given integration with online classified and dealership websites.
To be clear, I’m not saying the “perfect used car” isn’t available. In fact, I occasionally find “A”-grade vehicles in some dealer markets and buy list recommendations. It would be nice if there were more “perfect used cars” out there—lots of no-brainers that offer the greatest potential profit with the least amount of risk.
Unfortunately, that isn’t the reality of today’s marketplace. The majority of available used vehicles these days pose a trickier mix of opportunities and risks. Thankfully, dealers now have access to technology and tools that ease the job of recognizing and navigating both more effectively.