Whenever I go to a doctor for a check-up, my visit usually starts with a “history and physical” assessment.
The H&P, as medical folks dub it, is a cornerstone of healthcare. It gives the medical professionals an opportunity to efficiently ask me questions about how I’m feeling and my past medical history. Also, they perform quick physical checks of my blood pressure, pulse rate, breathing, reflexes, etc., to assess my overall condition at that moment.
The H&P is so important, in fact, that medical supervisors and regulators monitor H&P completion rates and their thoroughness as a key performance metric for nurses, interns and others who are required to perform these assessments.
I mention the H&P because it is very similar to the diagnostic checks dealers should perform on every used vehicle that they might consider acquiring, whether through a trade-in or auction purchase, for their inventories. Too often, as I’ve written about in the past, the decision to acquire a vehicle is driven by emotion or gut instinct, rather than a more qualitative and quantitative market-based assessment of the vehicle’s potential performance for a dealership—what I call “provisioning” inventory. In today’s volatile used vehicle marketplace, such seat-of-the-pants decision-making is an invitation to trouble.
So, what would the used vehicle acquisition equivalent of an H&P look like? I’ve boiled it down to the “Seven Vital Signs of Used Vehicle Condition and Performance.” It’s worth noting that the bulk of these vital signs have only become available in recent months and years, as technology and data integration for dealerships have improved:
- Demand: This vital sign assesses the number of shoppers in a given market area who are looking for the specific vehicle under a dealer’s consideration. We can determine this number thanks to data integration with online vehicle classified/shopping sites and search engines where would-be buyers express their potential purchase intent through vehicle-specific searches and click patterns.
- Interest: It’s one thing to know if people are searching for vehicles, it’s another to know if this intent shifts to genuine interest. With today’s technology and data feeds, dealers can tell the specific vehicles that are generating the greatest degree of real interest on third-party and dealership websites (e.g., clicks on Vehicle Detail Pages (VDPs) or views of vehicle-specific pages on a dealership website).
- Volume: Dealers should be familiar with this read on a vehicle’s ability to sell; it shows the number of the same or similarly equipped units that have recently sold in a specific market area.
- Market days supply: This vital sign is determined from measuring the number of the same or similarly equipped vehicles available in a dealer’s marketplace and the rate at which they sell. It’s the best barometer for dealers to assess how fast they can expect to move a unit, once they acquire it.
- Profitability: In today’s marketplace, it’s essential to know if you pay $X to acquire a specific vehicle, and price it at $Y, you can expect $Z in gross profits. This vital sign measures these variables to help dealers determine what to pay for a unit and how to price it to deliver a target gross profit (while accounting for reconditioning expense, pack and transportation costs).
- Availability: This vital sign helps dealers become more efficient at sourcing vehicles. It distills the degree of difficulty to acquire a specific vehicle by probing its availability (or lack thereof) at online and physical auctions across the country.
- Experience: I would consider this vital sign the least useful among the seven, given dealers often put too much emphasis on their past retailing experience with a particular brand or model at the exclusion of others that might be better sellers. Even so, it can be helpful to understand past experience as part of the decision to acquire a unit.
Much like medical professionals who use an H&P as a key starting point for assessing a patient and establishing a treatment plan, this seven-point diagnostic test will ensure dealers have a crystal-clear picture of what vehicles to buy, what they should pay to acquire them and where they can most efficiently find them.
Likewise, just as medical professionals are increasingly using technology and tools to conduct H&Ps and track the data they collect to minimize misdiagnoses and treatment mistakes, dealers should follow suit. Today’s inventory management technology and tools are an essential complement to enable dealers to make the best inventory acquisition decisions possible to ensure each vehicle is fully optimized to meet its maximum profit potential.