Like most automotive studies, the 2019 Cox Automotive Car Buyer Journey confirms what most retail stores already know, but their findings on the recent upswing in consumer used vehicle interest are dramatic. According to Cox, 64% of active buyers are leaning toward a used vehicle, and 48% of consumers feel that owning or leasing a vehicle is becoming too expensive.
Unfortunately, Dealer inventory is not keeping up with this trend. The majority of Dealers I have spoken with in 2019 are seeing 30%-40% fewer used cars on their lot vs the same month in 2018. This is bad news for franchise stores. For decades, used cars have been utilized to close the end of month “profit gap,” with Used Car Managers tasked to grab up vehicles at the auctions and quickly reselling them for 2,000+ in profit each.
Weaker new car sales mean fewer trade-ins. This has happened in the past, however (think 2010) and shortages were never this severe. The catalyst here is the influx of venture capital money flowing to the auctions through startups such as Carvana, Vroom, and others. I recently sat with a General Manager while he tried to secure vehicles at an online auction. By the time each auction was complete (and factoring in auction/delivery/conditioning fees), the average retail profit on a vehicle under $35,000 was about $900.
Penske, the undisputed leader in used car sales, is quickly adjusting to market conditions with their new “Vehicle Buying Centers.” These operate independently from their franchise stores, focusing purely on securing used inventory from owners at curbside. There’s NO pressure to purchase another vehicle.
While your Dealership probably doesn’t have the resources of a Top 5 Auto Group, the methodology is sound. I recently spoke with a “Vehicle Equity Manager” at a Kia store that does over 2500 monthly repair orders. Their BDC called each and every customer to discuss purchasing their vehicle. The result was 11 cars bought. Upon further discussion of this disastrous result, however, they disclosed that each customer buying pitch involved an “upgrade.” In other words, IF you buy a new car, THEN we will buy your car.
While your service department is certainly the answer to your used car shortage, our industry needs to rethink the “Vehicle Exchange” model that so many stores are practicing in their service lanes. Backing a loyal service customer into a corner on a new car purchase while they’re waiting for an oil change is no longer working. Please note, this does not refer to lease returns, which are critical to brand loyalty as well. Why are vehicle owners that are “off warranty” still coming to your service department? Because they trust you and enjoy the experience. The failure of our industry to turn the service lane into a credible used car source can be summed up in one word: Upgrade.
Every Dealer that relies on used inventory as an important part of their business plan needs to set up a IDC (Inventory Development Center) today. IDC’s make an offer to BUY the car at a wholesale price and DO NOT give up all the gross on that car by trying to put the customer in a new car deal. Think about it, how is the customer going to get home? Of course, they need another car, and a loyal service customer who still relies on you for repairs will stay with your brand. They now have a big check in their hands to provide a smooth transition to your New Car Manager.
I understand the idea of separating these processes goes against old-fashioned Car Dealer values (Always Be Selling). This is because Dealers underestimate their own customers’ loyalty. The fact is, if your service lane has 50 or more RO’s daily, you should be buying at least two or three of those cars per day. If your current efforts consist of “a guy in the lane” cherry picking 5 or 6 per day to upgrade, you may move 20 or so monthly. But check the profit on those deals. Once the numbers get put in the grinder, your Used Car Manager is left with no retail spread and will move the car to auction. Two valuable opportunities missed.
By the way, we have met with dozens of Service Managers in multiple states regarding the IDC concept, and every single one endorsed the idea. They understand that if your store can acquire that vehicle at a good wholesale price, it’s more likely they will get to keep that unit in their service ecosystem. This process directly addresses the issue of “lost” service customers!
We need to change with the times. Most customers have no idea about the equity in their vehicle, and they will react to any opportunity that offers a “cash out”…but NOT if you create an “either/or” situation. We have found that 8 out of 10 customers that accept a wholesale offer place all of that check on another vehicle at that dealership. And why wouldn’t they? They’re still servicing with you instead of Meineke or Midas, so don’t be afraid to make an honest wholesale offer to every “owned” service vehicle, not just the cars your “equity manager” has cherry-picked from the service appointment list. And what about their next visit? When informed that their car has lost over a thousand dollars in equity between oil changes, it gets their wheels turning. You’ll buy and sell more cars on the second and third offers than the first!
You’ve read countless articles about bringing the “Amazon Experience” to retail automotive. Amazon provides customers with valuable information to improve their current and future purchases, including offers on “similar” items. Letting a service client know the “running value” of their vehicle is the ultimate customer courtesy, and your loyal clients will remain loyal.