Thursday, Mar. 29, 2012, 01:58 AM UPDATED 2:17 AMBy Dale Pollak and Chad Goodson
CENTREVILLE, Va., and OAK BROOK, Ill. -
These days, dealers are looking for every edge to find quality inventory for their lots. Americans are holding onto their cars longer than ever, causing higher prices at auction and a smaller crop of quality vehicles on which you can bid.
According to a new study by R.L. Polk, “Length of vehicle ownership recently hit an all-time high: 71 months for new vehicles and 50 months for used cars and trucks.” The study goes on to say that, “longer length of ownership has resulted in a lower used-vehicle supply”.
In this crowded marketplace, you need to assess your strategy for long-term success if you want to outperform your goals and beat the competition. To help, consider this new method dealers are using to better evaluate and acquire in-demand units that others may pass up. It’s called provisioning.
What is “Provisioning?”
Provisioning is defined as the efficient allocation of resources to achieve a successful mission. To be clear, the mission for dealers is to operate a financially successful used car operation.
Put simply: For your business to thrive, you need to know what cars to buy, what to pay for them and where to find the right units for your inventory.
Provisioning is a new way for dealers to set their used vehicle strategy (e.g., size of inventory investment, ROI/turn expectations) and efficiently pursue the vehicles necessary to execute their plan successfully.
What Cars to Buy
Provisioning is like a ‘science’ because it gives you a methodical approach to buying used vehicles. It helps you evaluate certain types of information that are vital to the success of your used car business. In short, the categories are:
—Demand: the number of people in your area searching online for a specific vehicle.
—Interest: the average conversion rate from Search Results Pages to Vehicle Details Pages for a vehicle in your area.
—Volume: the number of units recently sold in your area.
—Market Days Supply: the current available supply of similarly configured vehicles, and the rate at which such vehicles have been sold (over the last 45 days).
—Profitability: the spread between average asking price and wholesale price (auction price vs. list price in your market).
—Availability: the number of units currently available at auction.
—Experience: the success of your recent sales for a specific make/model.
Analyzing this information on your own isn’t easy. But technology and tools can help you determine the types of vehicles that will deliver the best return on investment every month, giving you a huge advantage on your competition.
What to Pay
Once you determine the cars that sell fast in your market, you’ll want to make sure you pay the right price for them. At auction, there aren’t too many obvious deals these days, but you can still find gems with a little guidance.
Many dealers rely on professional buyer-solutions like those by vAuto, for example. These services use in-market data to help you determine which units are worth your investment. They can even help you identify the price point where a vehicle will get the most attention, get you the profit you need, and cover your reconditioning costs so you still hold gross.
Where to Find Them
If you’re a dealer in the Northeast in the winter, you may have difficulty finding enough SUV’s to keep your inventory fully stocked. Similarly, a dealer in the South probably can’t find enough convertibles for their inventory in the summer months. Wherever you are, there’s inevitably a shortage of certain cars in demand. So it can pay to look outside your immediate market for quality inventory.
Use online auctions to help keep your lot full of vehicles you know will sell. Online auctions can be some of the best places to find cars at good prices, without the hassle of waking up early, checking pages of run lists, or elbowing past other dealers to find your spot in the lane. Instead, sit back with your coffee and bid from the comfort of home or the office.
How to Reduce Acquisition Risk
Of course, you won’t be able to “kick the tires” and inspect these vehicles in-person. So you’ll especially need to consider the condition and history of vehicles you’re buying through online auctions. Otherwise, you might end up paying too much for a car that seems perfect, but has reported damage or another incident that could affect the unit’s retail value. The key here is knowing the cars with good service histories that merit your bids, since these vehicles often sell for better prices.
If you’re like many successful dealers, choosing to run a CARFAX Vehicle History Report on every car you consider buying is part of your standard procedure to assess a vehicle’s condition and spot any related acquisition risks. Whether through online auctions or in-person trades, this triage ensures you and your buyers feel more confident that the inventory you’re putting on the lot will turn fast and make top-dollar.
With declining supply and increasing demand for quality vehicles, there is little room to make acquisition mistakes on vehicles “you had a feeling about” or didn’t take the time to carefully vet. Provisioning helps you avoid these mistakes and turns your ability to efficiently and effectively evaluate and acquire used vehicles into a competitive advantage.
Chad Goodson is the process improvement manager at Carfax, and Dale Pollak is the founder of vAuto.