As a dealer, stop riding the wave or you will end up beached!

Look at today’s used-vehicle retail market from the consumer’s perspective: The news has been telling the public they’ve been paying inflated prices for used cars for the last three years. The latest news? Vehicle values are softening and consumers should see lower prices.

The costs involved with average market pricing your inventory are deals, gross profit and aging. To achieve market average, you must reduce the higher values and raise the lower values.

First of all, that makes you wrong two out of three times. When you look at what constitutes the higher average retail priced vehicles, it comprises:

— Personal-owned lease returns
— One-owner vehicles
— Well-maintained vehicles
— Damage-free vehicles
— And all of these must be in the right color and have the right equipment.

When was the last time you “stole” one of these? For these types of vehicles, retail pricing is lowered to achieve market average retail. What constitutes the lower valued vehicles? They comprise:

— Rental units
— Fleet vehicles
— Multiple-owner vehicles
— Damaged vehicles
— And vehicles in the wrong colors or with the equipment.

These prices for these types are artificially raised based on retail market average.

Deals are lost because 70% of consumers have a trade-in vehicle. These vehicles typically have history traits that deserve higher values —– but those are reduced based on average pricing. Anytime you lower an appraisal, you raise the risk of losing the deal. When dealers don’t trade for enough supply, they have to supplement by buying auction vehicles. Typically, auction vehicles have less-valued history traits that dealers tend to have to pay too much for — to ensure they’ve got vehicles to sell.

Gross profit is lost when all vehicles get blended to average pricing and dealers lose the ability to ask higher selling prices based on those higher-value history traits. Then there’s the factor of listings, which can make all vehicles look the same to consumers. When the consumers can’t tell the differences between vehicles, they don’t understand why one is worth more than another.

Aging happens when you artificially raise lower-valued vehicles because of the market average. These end up sitting around because they’re less desirable and won’t sell unless they’re priced correctly. Ironically, this usually only gets adjusted after the vehicle has aged for a while.

Look at your website and your online third-party listings; you’ll quickly see that your inventory looks and feels the same as everyone else’s in the marketplace. The biggest complaints consumers have about looking for a used vehicle online is that they can’t tell the differences between them. From the consumer’s perspective, they not only look the same, they are listed with the same generic descriptions that only list the standard equipment shoppers already assumed they had. Then they’re all priced very similar to each other, using market pricing.

The SOLUTION is to make each vehicle stand on its own and price each as it deserves to be. NO two vehicles are the same! Don’t be afraid to price them where they belong and only use market pricing as a starting point, not the end point.

Make sure the consumer fully understands how you arrived at the pricing. Do this by telling the story of the vehicle. How did you get it? Who owned it? Was it taken care of? What did you find wrong? What did you fix? When will it need tires, brakes, etc.? Why did you pick it for your inventory and why is it priced the way it’s priced?

Shoppers won’t know answers – until and unless you tell them.

–Just The Fax

By Robert Grill, Carfax Senior Partner Development Manager

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