Championship football teams are winners, because they execute in all three phases of the game: Offense, Defense, and Special Teams.
The most successful used car operators also consistently execute well in three phases of their game: They acquire the right cars for the right money. They price appropriately. They make sure every vehicle listing tells the best story, with sharp descriptions and photos, to capture online shoppers.
It’s fair to say that stocking, pricing and merchandising also make up the three critical elements of the new vehicle game.
But here’s what I find fascinating: The vast majority of today’s new vehicle dealers really only focus on one phase—price.
This singular focus isn’t without good reason. Today’s new car market has never been more competitive with educated, price sensitive shoppers, record high inventory levels, and factories pushing volume at all costs with lucrative below the line programs. In this environment, a proper price for a new vehicle is critically important.
But the other two elements of the game—stocking and merchandising—are also critically important. And, given the relative level of inattention dealers have paid to these two elements, there is real opportunity to gain a competitive advantage for those who pay closer attention.
Let’s address stocking first.
“It’s fair to say that stocking, pricing and merchandising also make up the three critical elements of the new vehicle game.”
The monthly factory order is probably the single-most complicated activity for sales managers. It’s quite a matrix: You have a ton of complexity with model trims, options and colors. You need to understand the market availability of each combinations, and account for the same/similar cars in your pipeline. You need to know the speed of turn for these combinations. You need to know what you’ve been selling.
It’s understandable that most sales managers, avoid that calculus, and rely on gut feel and sales history to make ordering decisions. It’s quick. It’s simple.
But it probably doesn’t provide the best result. In a recent vAuto study, dealers who combined sales history with a full accounting of market availability and speed of turn, ended up with a much different recommended order than those who only relied on past sales.
We see a similar inefficiency in dealer trades. Historically, dealer trades account for 25 percent to 30 percent of a dealer’s sales. These days, dealers across multiple brands tell me dealer trades drive 40 percent or more of their sales. Most of these transactions happen fast, without much thought of what you’re getting when you give. We’re finding many of these car swaps do more harm than good from the standpoint of your inventory’s overall health. Progressive dealers are now tightening the screws, using technology and tools to ensure they are only taking fast-turning/low availability cars back on trades.
Dealers could also do better in the way they currently merchandise their new vehicles.
Recently I searched Autotrader for a 2017 domestic sedan with a price up to $28,000. I selected one filter, a sunroof. The result: “I’m sorry. We don’t have your dream car.”
I’m willing to bet good money that this specific car definitely exists within 25 miles of my home. So why didn’t any vehicles show up in my search? It’s because there isn’t a dealer in this radius who took the time to describe their sunroof-equipped sedans correctly.
Such oversights are problematic for two reasons. First, dealers are undercutting their returns on their digital marketing investments. Second, these dealers are missing out on potential customers.
We see a similar problem with rebates. Due to the hyper-competitive nature of today’s new car marketplace, it’s becoming increasingly common for dealers to stack incompatible rebates or include all rebates in their prices (including those intended for college grads and military personnel) even though more than 90 percent of shoppers don’t qualify. This tactic may work in the short term for some dealers, but it’s not a sustainable strategy to develop a relationship based on transparency and trust with today’s buyers.
As a dealer told me yesterday, “This customer drove 70 miles to buy my vehicle because I break out and describe all the legitimate rebates included in my online price.”
We’re now entering the second quarter of the year and just like Bill Belichick and the Patriots did in the Super Bowl, I believe new car dealers need to make some adjustments to their game plan. By paying closer attention to stocking and merchandising, dealers will give themselves a competitive advantage in the market and set themselves up for a championship banner year.
Author: Brian Finkelmeyer
Brian Finkelmeyer serves as the Director of Business Development for Conquest at vAuto. In this role, he is responsible for all aspects of vAuto’s New Car business. Prior to vAuto, Brian spent 18 years with Nissan North America in a variety of sales leadership positions. He is a routine presenter and author for various automotive trade publications. His topics focus on the importance of increasing new vehicle inventory turn by having the proper inventory mix, strategically pricing based on age and supply, and insights on maximizing effectiveness of dealers marketing investment.