Data from DealerSocket’s Inventory+TM team reveals profitable opportunities for dealers who stayed the course.

Field reports in May confirm what DealerSocket’s April snapshot of appraisal trends seemed to indicate — that a high degree of pent-up consumer demand could create a small window of opportunity for dealers to generate higher gross profits on the sale of used inventory.

May Appraisal Trends

Retail Demand Resets Market

Purchase appraisals, or wholesale/auction vehicles evaluated by dealers, fell to their lowest level the week of April 6. Since then, appraisal counts for this category have increased by 114.7%. In May alone, purchase appraisals rose 135%.

The pick-up in activity reveals that retail demand is once again setting the market, with the guidebooks in catch-up mode due to auction closures in March and Apil and dealers on the hunt for pre-owned vehicles core to their dealership and available at the right wholesale price.
of their core inventory,” Black Book stated in a recent report, adding that dealers are hesitant to get stuck with vehicles they don’t traditionally stock in a depreciating market.

Data from DealerSocket’s Inventory+ team shows a 20% week- over-week decline in total appraisals the week of March 16, when most stay-at-home orders took effect. Trade appraisals, or appraisals that occur on a customer’s trade-in, were down 26% during the same period, while “Purchase Appraisals” on wholesale and auction units plunged by 35%, according to the data.

Overall, appraisals were down 34.4% from the first week of March to the first week of April. However, activity has trended up since.

Window of Opportunity

Inventory+ users in the Northeast, where some markets remain limited to appointment-only sales as of early June, are reporting either record-setting months for April and May or year-over-year increases in terms of pre-owned sales counts and gross profits. And that momentum seems to be carrying over into June.

Trade appraisal counts appear to confirm strong consumer demand, with the number of trade appraisals (evaluation of consumer trade-ins at the dealership) increasing 27.8% in May after bottoming out in early April due to the impact of shelter-in-place orders. Since April 6, trade appraisals have risen 97.9%.

Consumer appraisal counts offer an even brighter outlook, as consumers continued to initiate vehicle evaluations through online lead forms during the height of shelter-in-place orders.

The apparent retail demand is now rewarding dealers who resisted the urge to offload aging units, as inventory shortages are allowing them to get higher asking prices with little to no negotiation. Some dealers, according to field reports, are even pricing units they’ve had since March like it was Day 1 on the lot.

The going theory is consumers camped out on vehicles of interest through the COVID-19 period between March and April, hoping for a price cut that never materialized.

Conclusion

As the old saying goes, make hay while the sun shines, and the sun is still shining in terms of a dealer’s opportunity to generate higher front-end gross profit. However, that window of opportunity won’t stay open for long, with wholesale value normalization expected in the next three to four weeks. The guidebooks, by some estimates, are about a month to a month and a half behind.

For now, dealers need to hit the reset button on their aging strategies and pump up retail prices, especially on three-, four-, and five-year-old vehicles. The exception is late-model units, which should be priced and advertised around factory new-vehicle incentives. Lease returns and the expected flood of rental units should refuel inventory levels, but not until the wholesale prices for those market-returning units fall to a more reasonable level.

It happens at every dealership. You’ve invested time and money reconditioning a vehicle that seemed perfect for your lot. Thirty days becomes 45, 45 days becomes 60, and, finally, it becomes clear this car has to go.

Do you sell the vehicle at auction and incur transportation costs, auction fees, and possibly wholesale losses? What if your frontline-ready car is purchased by a competitor and sold at a profit?

If your store is part of a dealership group, the best and most profitable solution is to give that aged or unwanted unit another run at a sister store’s lot. By trading within your dealership group — a process known as group trade — you’re able to reduce wholesale loss, save on auction fees, keep core inventory within your group, and drive additional overall group revenue. In this article, we’ll outline best practices for running group trade for operations of all sizes.

Select a Moderator

There are multiple ways to set up group trade. We recommend a model that organizes all your group’s used-car managers and general managers weekly. Having this regular cadence keeps your trade desks at one to two hours. We suggest scheduling them on Mondays at 9 a.m. or 10 a.m., so trading ends before the dealerships get busy.

We recommend you assign a nonbiased individual, such as the group’s used-car director, to manage and moderate the bidding. This person will also need the authority to make decisions, especially when it comes to settling disputes. Think of this individual as your group trade project manager, because you need someone to keep all your managers and GMs on track.

Trade Desk Preparation

Each week, managers must compile a list of vehicles they plan to make available during the trade desk. Every group has its standards, but we recommend sending any unit that’s been on the lot for 45 days or longer.

Vehicles listed should be reconditioned and priced correctly before the trade desk. Cosmetic and mechanical problems are often the reason frontline-ready vehicles go to auction. Requiring that vehicles listed for trade are in good condition also helps instill trust. We’ve seen it happen before: A vehicle traded to a sister store requires reconditioning that wasn’t disclosed. The point here is you need to set ground rules to which all participants are held accountable.

As for pricing, vehicles should be priced to current market conditions. That means vehicles that haven’t received a recent price update shouldn’t be offered for trade.

Also make sure vehicles listed for trade have clear, detailed interior and exterior photos, as well as full book-out information. Remember, transparency is key. Like customers, your fellow manager at a sister store won’t purchase a car without photos, as vehicle images often help identify problems or explain why a vehicle didn’t sell.

Knowing that aged vehicles will be offered to sister stores encourages used-car managers to be more vigilant during trade walks, and when monitoring and adjusting retail prices to market fluctuations, and making sure vehicles have been booked out accurately.

Make sure your moderator diligently manages the trade desk timeline. By Saturday night, all vehicle lists should be submitted to the moderator. By Sunday, have your moderator compile all vehicles available in trade desk. Managers can look at the list Sunday and prepare to bid by Monday’s call.

Key Strategies

Used-car folks love to bargain. That’s why they’re in the business. Help managers understand they will get great vehicles if they give great vehicles — i.e., “You give me a break on this car, and I’ll give you a break on that car.” That’s a win-win for the group. Encourage managers to collaborate and cut deals, but make sure every deal goes through the group trade desk.

The following are other trade desk strategies you can implement:

  • To keep all managers engaged until the sale ends, sell vehicles based on age, not by store. That disburses each dealership’s vehicles throughout the sale, making it easier to keep managers engaged as they wait to bid on or sell a vehicle.
  • Make faster decisions about a vehicle’s fate; they don’t get better with age.
  • Used-car managers should be prepared to talk up their vehicles — via conference call — when they are featured.
  • The bidding should be done in increments of $250 and limited to one minute per vehicle.
  • Keep things moving and discourage managers from getting attached to off-brand vehicles. That’s especially important if the vehicle is valued at $10,000 or more, or a sister store of the same franchise brand can sell it as a certified or noncertified pre-owned vehicle.
  • A vehicle should only be traded once within the group. A vehicle that sits 60 days at one dealership and another 60 days at a sister store needs to go.
  • Urge managers to be proactive and search for group trade desk opportunities. For example, take notice whenever a sister store appraises a trade. DealerSocket’s Inventory+ software has a feature called Group Trade, which will notify you by email or text whenever a store within the group takes in a trade. If that vehicle fits your core inventory profile, monitor it. If it hits the 45-day mark, let the store’s used-car manager know you’d like to have it. Conversely, if you have a car that isn’t right for your store, contact a sister store’s used-car manager to see if he or she is interested.
  • Group Trade enables dealerships to run weekly reports that show data such as the trade desk’s closing ratio, pending appraisals, preliminary photos taken, book outs, and percentage of core vehicles in inventory. It can also track the age of units in inventory.

Above the obvious benefits, group trade promotes camaraderie among colleagues who work for the same company but may not know one another. Our team has seen group trade foster brainstorming, collaboration, and increased morale, and decreased turnover.

New data from DealerSocket’s Inventory+ team reveals that dealers are betting on a high degree of pent-up demand when markets open up.

By Gregory Arroyo

Field reports from DealerSocket’s team of Strategic Growth Managers reveal that dealers haven’t pushed the panic button just yet. Their focus is on the high degree of pent-up demand they believe rests on the other side of the industry’s recovery from the COVID-19 pandemic, and the chance to pick up market share when markets begin to open up.

A Strategic Growth Manager operating in the Sacramento, Calif., area noted that dealers benefited from the way things came to a halt quickly vs. a slow drip. That allowed them to make inventory and staffing decisions through March, as well as seek expense relief from their floorplan finance sources and technology vendors.

For dealers with closed showrooms or stores operating with limited staff due to strict social distancing guidelines, there was little time to delve into emerging sales trends they had not experimented with before the pandemic. In a lot of cases, management teams handled appointments and sales in the absence of sales staff.

DealerSocket’s Strategic Growth Managers report many learnings and process refinements at dealerships, especially for operations that had tested remote sales and digital retailing.

By the Numbers (National):

Appraisals Fall

In terms of pre-owned inventory, Strategic Growth Managers operating in the Northeast report that some dealer groups were able to squeeze in trade desks just before stay-at-home orders took effect. Multi-state dealers on the East Coast were also able to reshuffle inventory out of areas with strict sales guidelines.

Beyond that, there’s wasn’t much to do with respect to managing inventory, aside from updating vehicle listing and other merchandising activities.

Virtual auctions reported strong attendance in March. The problem was, dealers weren’t buying, with KAR Auction Services reporting an 84% decline in volume for virtual sales nationwide. And with the physical auctions closed and big dealer groups not buying, the firm reported a 12% decline in wholesale values — 15% if adjusted for fewer lower-priced trade-ins.

“We have heard repeatedly from dealers … about their hesitancy to put a value on a trade-in that is not part of their core inventory,” Black Book stated in a recent report, adding that dealers are hesitant to get stuck with vehicles they don’t traditionally stock in a depreciating market.

Data from DealerSocket’s Inventory+ team shows a 20% week-over-week decline in total appraisals the week of March 16, when most stay-at-home orders took effect. Trade appraisals, or appraisals that occur on a customer’s trade-in, were down 26% during the same period, while “Purchase Appraisals” on wholesale and auction units plunged by 35%, according to the data.

Overall, appraisals were down 34.4% from the first week of March to the first week of April. However, activity has trended up since.

Markets In Recovery

As of the week of April 19, according to J.D. Power, nearly all markets are in recovery or exhibiting growth, as dealers adapt and selling regulations are clarified.

DealerSocket data also reveals a pick-up in activity, with appraisals spiking the Monday following April 17. That’s when the U.S. Department of Homeland Security deemed auto sales an essential service. Much of that lift, however, was from dealers appraising wholesale and auction vehicles, which increased 182% from the week prior.

DealerSocket’s data also revealed an uptick in consumer activity, with appraisals on consumer trade-ins increasing 34.3% during the first three weeks of April. Even more compelling is appraisals initiated by consumers through online lead forms remained steady throughout the period after inching down 2% on a week-over-week basis the week of March 16.

A snapshot of website traffic by DealerSocket’s DealerFire team also reveals a normalization of online consumer behavior, with organic traffic climbing 15% to 20% over the 10-day period ending on April 24. Dealerships located in states that allowed showrooms to remain open saw a sharper overall rebound. In contrast, dealers in states with a high number of COVID-19 cases continued to experience significant declines in site traffic.

However, those dealers are now starting to see increases, with consumers returning to more normal browsing behavior. “In both cases, traffic has rebounded in the past week,” read DealerFire’s April 24 Digital Marketing blog. “But in Texas, the traffic has already come back to very near pre-COVID numbers.”

Leads have also been trending upward, with DealerFire data revealing that dealers in areas less affected by COVID-19 are now seeing numbers equal or within striking distance of pre-COVID-19 trends. Even dealers in heavily impacted areas are seeing an uptick in lead submissions.

Late Models a Concern

On the retail side, dealers continue to hold the line in terms of their asking price for the Top 50 makes and models, which inched down 3% from the week of Feb. 16-29 to the week of April 14-20, according to DealerSocket data. However, there is evidence dealers are willing to meet customer demands, with the data revealing some front-end gross erosion. Still, dealers have lowered their selling price just 1% during the period. Days’ supply, however, was up 718%.

The immediate concern is aging, especially if the expected feeding frenzy never materializes. If it does, throw aging out the window, said on Strategic Growth Manager in the Northeast, as dealers will be able to demand higher gross profits. There are exceptions, however.

Current model-year and one-year-old pre-owned vehicles could be problematic, as automakers continue throwing big rebates, deferred payment programs, and other incentives on the hoods of new models. So far, according to J.D. Power, incentives remained at a record level of $4,700 per unit during the week of April 19, which could be enough to pull pre-owned buyers to new-vehicle lots.

Lease extensions permitted in March could also hamper the values of late-model units, with many of those off-lease vehicles expected to hit the market by the end of April.

As for profit drivers, the belief is the potential lies in three-, four-, and five-year-old vehicles, especially with the deadline for filing federal income taxes extended to July 15 and the IRS drowning in unopened tax refund requests.

That’s why dealers are holding onto inventory, as they know availability will be critical. The big question is just how quickly things will come back, especially given that the used-car guides typically take 14 to 30 days to adjust.

Positive Signs

The good news is many of the challenges dealers experienced during the Great Recession have yet to materialize. For instance, the national average for a gallon of gas, according to the latest data from AAA, has dropped 48 cents in the last month to $1.883 — the cheapest in more than four years. During the height of the Great Recession, the national average peaked at $4.10 a gallon.

That might explain why trucks and SUVs dominate DealerSocket’s Top 10 pre-owned sales lists for all regions except the South (See Charts). In fact, J.D. Power called the pickup segment the most resilient in the industry in a recent report. Recovery in the SUV segments is also gaining steam.

Also absent is the credit tightening seen during the last recession, with J.D. Power noting that finance sources have greeted record transaction prices — the average reaching a new high of $35,800 during the week of April 15 — by approving higher loan-to-value ratios across the full spectrum.

“Consumers in all credit categories are purchasing and financing more expensive vehicles,” the firm stated in its report, adding that a higher percentage of buyers are also financing “more than the value of their vehicles relative to historical levels.”

There are looming signs on the horizon, however. As reported by Automotive News, Ally Financial Inc. told investors during a recent call that 15% of its auto-loan customers have asked for payment deferrals. And of the 1.1 million borrowers who requested forbearance, 70% had never had a late payment.

Automotive News also reported on April 21 that Credit Acceptance Corp., which specializes in financing credit-challenged buyers, warned of a sharp drop in payments. The firm was among the first to report an uptick in delinquencies, the publication noted.

Conclusion

In terms of most-likely and worst-case scenarios, Black Book projects a 25% drop in new-vehicle sales if unemployment jumps to 10%, as well as a 17% drop in wholesale values compared to pre-COVID projections, with some recovery in the fall. The firm’s worst-case scenario has new-vehicle sales and wholesale values falling by 40% and 25%, respectively.

Consumer confidence and unemployment filings will be critical indicators in the weeks and months ahead, with KAR Chief Economist Tom Kontos noting that values should improve once new filings dip from the millions to pre-pandemic averages of about 250,000 claims per week. While he doesn’t expect wholesale values to fall 20% below seasonal averages, he warns it could be close.

J.D. Power put 2020 retail sales at between 11.3 and 12.5 million and total sales at between 12.7 and 14.5 million vs. its baseline of 16.8 million. The firm also projects that the virus could eliminate between one million and 1.7 million sales between March and July.

As for dealers, the big unknown is pricing, which means transactional data will be a critical guide as they navigate the recovery. Their physical inventory should be their No. 1 priority, as well as their virtual showrooms. Vehicles need to be cleaned, and merchandising activities need to be kicked into high gear. That means updating photos and vehicle descriptions, as well as refining their digital marketing and data mining strategies to get eyes on their inventory.

Frank Scott, Senior Customer Success Manager

Frank Scott, Senior Customer Success Manager

Location: Fort Lauderdale, FL

I was born and raised in Fort Lauderdale. I love to play golf, fish, and root for the Florida State Seminoles!

What do you do at Dealersocket?

I consult with large dealer groups to improve their inventory management process and help them fully utilize our Inventory+ product. I’ve been in the industry for over 17 years.

What motivates you to wake up and go to work?

I really enjoy helping our customers gain data insight and sell more cars!

What has been your favorite project so far?

I was tasked to figure out how much one extra day to sell a vehicle would cost the dealer…turns out, its $74 per day.

What’s something most people don’t know about you?

I made a half-court shot at Harlem Globetrotter game in front of 15,000 people. I won two first class tickets to Asia.

What is an embarrassing, green pea moment you had when you were starting out?

When I first started out in the industry and was working at a dealership, I didn’t like the way the cars looked on the lot and, instead of going to GM and letting him know, I went to owner. The GM did NOT like me after that.

What is your favorite, or a secret, inventory management tip?

Do more appraisals and price the car right from day one!

In times like today, winning and doing more appraisals is critically important. Industry veteran lays out a four-step process for doing just that.

By Frank Scott

Trade-in appraisals are a boon to both new- and used-vehicle sales and a great way to acquire core used-car inventory without paying auction and transportation fees. And all it takes is saying the following to every customer who drives onto your lot:

“Hey, I see you drove up in that Dodge Charger (or whatever). We’re looking for used cars. Do you mind if we do an appraisal?”

Some salespeople might shy away from making that statement because they feel it adds yet another layer to negotiations, but they shouldn’t. Here are four steps to help you craft a comprehensive appraisal strategy and trade-in mindset that will yield positive results at your dealership.

Step 1: Create the Process

Make it part of your dealership’s culture to ask every sales and service customer whether you can appraise their vehicle. And make sure to record those interactions in your CRM. Additionally, make sure your customers accompany your appraisers as they inspect their vehicles. Here’s why:

  1. Customers are super honest about their cars and will tell your appraiser things that can help him or her make informed decisions about a vehicle’s value. For instance, a vehicle history report may show an “accident.” Was is a fender-bender or a major collision? Let your customer give you those details.
  2. Appraising a vehicle represents a great time to explain the process and factors that affect a vehicle’s value, such as accidents, mileage, the condition, the existence of a transferrable service contract, or even a missing set of keys.
  3. While you’re at it, share how you calculate appraisal values and whether you use guidebooks such as Kelley Blue Book or NADA Guides. Explain that you take into account the dealership’s transaction history with vehicles of a similar make, model, and condition. Also mention that you can solicit bids from your dealership network or wholesalers.

Step 2: Determine the Value

The first question your appraisers need to answer is whether the vehicle they’re evaluating is a retail or wholesale piece. If it’s wholesale, get the car’s book value — Manheim Market Report, Black Book, or Kelly Blue Book — and add or subtract from that value based on the vehicle’s history, condition, and other things that affect its price.

If it’s a retail piece, the following to-do list can help calculate its appraisal value:

  1. Gather transaction data to determine how much similar cars sold for at your dealership, in your group, and in your market over the prior 90 days. Inventory+, DealerSocket’s inventory management tool, can help by serving up actual vehicle transaction prices — even by vehicle trim level — and profit margins. The advantage of using Inventory+ is that it uses predictive algorithms based on real transaction data, not online prices.
  2. Check out the prices of similar cars listed for sale in your market area, which is typically within 100 miles of your dealership. Again, DealerSocket can help. Inventory+’s TrueTarget tool aggregates listing data from third-party websites like Cars.com, et cetera. Then DealerSocket’s TrueScore system, another feature within Inventory+, assigns individual vehicles a score based on that vehicle make’s sales performance at your dealership or in your market.
  3. Use book values, but make sure you’re on the same page as your customer. Chances are, your customer has already consulted KBB.com or NADA.com to figure out what the trade is worth. Make sure they tell you which source they used, so your appraisal is neither too low nor too high from the values they viewed. In other words, idiot-proof yourself.
  4. Combine all of the above, and you should have enough information to determine the car’s appraisal price.

Step 3: Justify Your Price

You’ve settled on an amount. Now you have to convince your customer it’s a reasonable price. Here’s what you need to show your customer:

  1. List items (tires, accidents, smoke odor, et cetera) that need to be replaced, repaired, serviced, or addressed — along with the dollar value of each item — to make the vehicle retail-ready.
  2. Print out the book value and listings of similar vehicles from the internet.
  3. Having backed out reconditioning costs, make out a check to the customer in the amount of the appraised price.

There’s no guarantee your customers will agree with your appraisal, but they may be more understanding if you say something like: “We love your car, but we are in the business to make a little bit of money, and this is the best we can do on your car.” That statement may even get them to say, “Yeah, I do need tires; I see where you’re coming from.” The key is to justify your appraisal.

Step 4: Check the Metrics

So you’ve improved your appraisal numbers, but are you winning enough appraisals? And what should your appraisal closing ratio be? Here are a couple of stats most dealerships monitor to get those answers:

  1. The number of appraisals you do should equal 150% of your new- and used-car sales. In other words, for every 100 new and used cars you sell, you should do 150 appraisals. If you’re way below that, you’re not conducting enough appraisals.
  2. A solid appraisal closing ratio is in the low 40% range.

During Times Like Today

With car sales expected to plunge during the COVID-19 pandemic, dealers undoubtedly can use all the help they can get. One major advantage of using Inventory+ to assist with appraisals is that its vehicle price data are based on real transaction data, not internet listings.

Remember, it’s dangerous to base your prices on just what the market listings are saying. That’s because some dealers could panic, drop their online price, and then send that car to auction. And you won’t know whether the price you see online represents a car sold at retail or one sent to auction. Following internet prices can be misleading and cause other dealers to panic as well, so don’t be part of the problem.

Frank Scott has been in the automotive industry for over 17 years and currently serves as a Senior Customer Success Manager at DealerSocket.

Dear Customers and Partners,

Our thoughts are with you during these difficult times. As you may know, DealerSocket has built our reputation on a legacy of listening and partnering with our dealers. We recognize that all of us are in this fight together, and we are focused on helping you navigate through this crisis both economically and operationally. After countless discussions with our customers and hearing from you over the past week, we are announcing a significant reduction to your DealerSocket bill for April.

DealerSocket billing reductions:

Your April bill will be automatically credited in the amounts represented above, so no action is required from you. Your credit statement will be separate from your April bill, as many April bills have already gone out. With that said, there are some basic qualifying terms listed below.

As I’m sure you are also experiencing, things seem to change hour by hour. We will continue to assess the situation and talk with our customers, as we plan for things beyond April. We are trying to strike the right balance between being prepared for you when the market recovers and ensuring we can all weather this storm together.

In addition, we are offering our customers several promotions to help you navigate this crisis. Our offers include promotions for:

Since we are adding promotions and various resources for dealers often, please view DealerSocket’s latest information for our dealers at the link below, and as always, please feel free to reach out to your Customer Success Manager with any questions or if we can help in any way:

https://www.dealersocket.com/coronavirus-support/

We will get through this, and we will get through this together. We are committed to fighting through this with you. THANK YOU for partnering with DealerSocket. I hope you know how much we value and appreciate your loyalty, partnership, and your business.

Details regarding our COVID-19 relief package:

I wish you, your families, and your team members health in these unprecedented times.

Sejal Pietrzak
President & CEO
DealerSocket

Nicholas Oakley, Strategic Growth Manager

Nicholas Oakley, Strategic Growth Manager

Location: Spokane, WA

I have been working in the Automotive industry since 2013. I have two children and another on the way!

What do you do at Dealersocket?

As a Strategic Growth Manager, I partner with dealerships to help them fully utilize the DealerSocket CRM and Inventory+ software to their advantage.

What motivates you to wake up and go to work?

I love my industry. Every day is something new and this has been one of my favorite jobs of all time. The interactions we have with our clients and the relationships we build based on mutual experiences within the industry are unmatched.

What has been your favorite project so far?

One of our auto groups had asked for a series of systematic training across each store within the eight-rooftop group. At every training the sales staff went into it completely unmotivated and having an “I already know this” mindset. However, by the end, everyone learned something new and had new inspiration for using the tool. It gets me excited to see how dealerships get motivated when they realize how much they had in front of them but not knowing quite how to use it until after training sessions.

What is an embarrassing, green pea moment you had when you were starting out?

I upped the General Manager of the dealership I worked at. Not kidding I had never met the guy and one of the veteran sales staff told me to “go get that up”. The GM, Ash, had a hilarious sense of humor and didn’t tell me who he was until I got to the four square and brought it to the desk. The managers finally had the heart to tell me and it was one of the most embarrassing moments I can remember in this industry.

What is your favorite, or a secret, inventory management tip?

Never buy something you think is cool. Your taste may vary greatly from your customers taste resulting in you stuck with a vehicle for a very long time. Know what sells and buy that. There is a white Lincoln Continental that still haunts me to this day…

Two industry veterans share their five-point plan for pricing pre-owned inventory to attract more eyeballs and achieve your sales and profit goals.

It takes skill, technology, and a keen eye focused on sales and prices at your dealership and in your market to yield desired profit margins when pricing pre-owned inventory, say Winston Harrell and Nick Oakley.

As two dealership veterans who now serve as strategic-growth managers for inventory at DealerSocket, they combine their expertise to present strategies, practices, and tips to help calculate prices for your online inventory that will attract eyeballs and foot traffic to meet your dealership’s sales and profit goals.

Tip No. 1: Price at the Point of Acquisition

Have a pricing strategy at the point of acquisition; in other words, know how a vehicle fits into your dealership’s marketing plan and your market, and know the vehicle’s best price, Harrell says.

  • Post the vehicle for sale online four or five days after it is acquired as a trade-in but before its reconditioned. An inventory management tool, such as DealerSocket’s Inventory+ mobile app, puts the power to do just that in the hands of appraisers.
  • Using the tool, you can scan a vehicle identification number to verify a vehicle’s equipment, obtains its invoice price, and ensures it is properly stocked. Inventory+’s mobile app can also be used to take preliminary photos.
  • Certification — which calls for reconditioning, a warranty, and a retail price premium when comparing noncertified vehicles of similar make, model, and mileage — matters. “If I don’t have the margin for it, I may not certify that vehicle,” Oakley says. “I wouldn’t price a non-CPO vehicle against a CPO vehicle. Those are the things we look at when pricing vehicles.”

Tip No. 2: Price Similar Vehicles in “Brackets”

That means vehicles of a similar make and model should be further categorized and priced to compete based on attributes such as trim level, optional equipment, or whether it’s certified, Oakley says.

  • Take a late-model midsize sedan of a specific brand. Many of those vehicles in the market are mid- or upper-midtrim-level vehicles missing certain optional equipment, such as sunroofs and navigation systems.
  • “I’ll know those vehicles typically come from a rental company,” Oakley says, “and the market is flooded with them, which typically drives the price down. “When looking at those cars that have specific features that rental-car companies usually don’t buy — navigation, sunroofs — I bracket that as nonrental. I know that vehicle is more valuable, so I will price it differently.”
  • A vehicle priced lower than other vehicles of like make, model, and mileage doesn’t necessarily sell faster or better than its peers. Neither does one that is priced significantly higher, Harrell and Oakley note. “Vehicles need to be priced accurately, so a customer doesn’t think there’s something wrong with it,” Oakley says.

Still, shoppers are going to look for price first, Harrell adds. So having some attention-grabbing product with less content and a lower price that also fits the dealership’s business model “is always a very good strategy to have,” he says.

Tip No. 3: Know Thy Market, its Radius, and What Affects It

Know your dealership’s marketing radius and your nearest competitors. For example, dealerships in rural areas might have customers who are willing to drive three hours to buy a car, but consumers in major metropolitan areas won’t travel more than 30 minutes to a dealership.

  • Inventory+ by DealerSocket can set a market radius unique to each vehicle. A Ford dealer located in a metropolitan area that sets a market radius for a mainstream F-150 XLT for, say, 25 miles could set the radius for a high-performance, low-availability F-150 Raptor at, say, 100 miles, because “people are willing to travel that distance for that vehicle,” Harrell says.
  • “Seasonal” vehicles should be priced to sell at certain times. For example, in the northwestern part of the country, convertibles don’t sell well in winter versus summer, when drivers want to drop the top. Therefore, I wouldn’t keep as many convertibles in stock from October to April as they are unlikely to sell. It would be ideal to price this vehicle to sell as fast as possible if October is approaching, Oakley says.
  • Price your vehicles to appear on the first page of a search engine. “I don’t need to be No. 1 in those engines because 90% of the time, customers don’t just look at a top car,” Oakley says. “They’ll look at the first page or page and a half before they move on.”

Tip No. 4: Employ an Inventory Management Tool that Provides Historical Transactional Data

Know what you can sell and when you can sell it for the most profit. If you lack historical pricing and sales information in your inventory tool, you’d have to do it yourself by extracting data from your dealership management system, “and it’s not really set up for that,” Harrell says.

Inventory+ offers a pricing report that can help, filtering sales by make, model, age, and more. It also serves up historical data such as:

  • The number of vehicles of a particular make and model in a market;
  • The prices of those vehicles;
  • A dealership’s sales and price performance with specific vehicles and the vehicles’ market values at the times they were sold;
  • The vehicles’ book values; and
  • The number of those vehicles the dealership wholesaled, the wholesale prices and whether a loss was incurred on those units.

“So I have those factors I need to make an intelligent decision,” Harrell says.

Tip No. 5: Have a Pricing Strategy for Aging Inventory

Some dealerships engage in aged pricing — also known as turn pricing — meaning that an unsold vehicle’s price is reduced at set intervals as it ages.

  • Set standards for how long you will keep a vehicle before reducing its price, Oakley says. “I price a newly acquired vehicle a little higher than I normally would to maximize my profitability on that unit,” he explains. “But after 60 days or 45 days, I’ve held onto that vehicle for a really long time, and maybe I want to get rid of it by day 90. Then I need to start lowering its price, so when people search online and see it, they say, ‘Hey, this is a great deal.’ ”
  • Pay attention to book values when reducing the price of aged inventory. “If I’m not taking into consideration what the market is doing and changes in book value, I may reduce the price by, say, 2%, but that book value may have changed by 3%,” Harrell says. “Now, I’m in the position of, yes, somebody wants to buy the car, but I can’t get it financed at that amount.”

Nine times out of 10, a core vehicle will sell for a higher price than its going market price. Two industry veterans provide a three-step process for stocking your lot with core inventory.

By Robert Cowan and Sandy Davis

We know that turning and burning through inventory won’t get you to your profit goals, because successfully managing inventory requires a delicate balance between cost of goods, profitability, and, yes, how quickly you can sell it. We call it the Ideal Inventory Model™, an approach designed to help you stock core inventory — or vehicles that deliver above-average grosses in below-average turn times.

There are many ways to determine your dealership’s inventory, and there are plenty of software tools that can help. In this article, we’ll walk through a proven process for stocking core vehicles.

Step 1: Determine Your Core

The reason you need to identify your dealership’s core inventory is, nine times out of 10, a core vehicle will sell for a higher price than what it’s going for in the market. Nonluxury dealerships, both import and domestic, generally operate best when core vehicles account for 45% to 55% of their preowned inventory.

The Ideal Inventory Model (IIM) is the backbone of Inventory+ and how we determine core at DealerSocket. It looks at your sales history to determine if a vehicle would be a profit driver at your unique dealership, and not just a market performer. Each vehicle will receive a score, or TrueScore, on how it performs at your dealership or in your market. If you’ve never sold a car similar to that, predictive algorithms will pull similar vehicle transactions to help you make a data-driven decision.

It’s important to not rely solely on live market data because other dealers in the same region are getting the same recommendations, which increases wholesale costs for the same vehicle. That often leads to those profit-squeezing, race-to-the-bottom pricing wars. The advantage to using Inventory+ is its algorithms are constantly updating as transaction data flows in daily. That allows the tool to look for areas of improvement when developing your store’s customizable buy/sell list, which the system links to matching available vehicles (such as missed appraisals, in group trades, or auctions).

To determine your core, we focus on profit per day – or vehicles that drive you profit while turning within your desired time frame. It’s important to be able to identify if a vehicle is core or not to your dealership at all stages within a vehicle lifecycle: acquisition to disposition.

Step 2: Acquire Profit Drivers

When acquiring a car, Inventory+ will let you know right away if it’s a profit driver for your lot with TrueScore. Each car on your lot has two TrueScore metrics: one for how the vehicle will perform at your dealership, and one for how that vehicle performs in the market. Both scores are measured on a five-point scale.

Your dealership score is based on your store’s transactional history, while your market score indicates how well the vehicle performs in your local market. The reason why that’s important is some vehicles may perform differently at your store than in your local market, while others might not be profit drivers at your dealership but are high market performers. Your market score is also important when you have no transactional history on a particular unit.

Now, an average car will have a score of about 2.5, while a high-performer will have a score of three or higher. TrueScore also provides the vehicle’s profit per day, average turn time, how it ranks against similar vehicles your dealership sold in the last 30 days, average sales price compared to the market, and much more.

We recommend sourcing vehicles from trade ins, missed appraisals that slipped through the cracks, in group trades, or auctions. While acquiring cars from these sources, you’ll want to make sure your dealership’s TrueScore is at least a 2.5.

When working an appraisal, simply plug in the vehicle identification number into Inventory+’s Single Page Appraisal. The system will immediately extract transaction data from the DMS to provide stocking and pricing recommendations, or the vehicle’s TrueScore. Based on this score, you’ll immediately know if the car will be a profit driver, or loss to your dealership.

As you look to buy cars, refer to your buy/sell list. The stocking recommendations are the result of our Ideal Inventory Model, so you’ll see exactly which cars you need to stock to drive profit per day. You can filter by how many vehicles you already have in stock, filter by your dealership score, market score, cost, profit opportunity, and more. Once you know which cars to purchase, you can source those vehicles directly through Inventory+.

Step 3: Know Your Exit Strategy

You should determine your exit strategy in two places: as soon as a car is in the appraisal process and during reviews of existing inventory (every 10 or so days) to determine any vehicles that have yet to turn.

Remember, as you’re appraising a car, if it’s TrueScore is under 2.5, it’s probably best to get rid of that car before trying your hand at selling it. If a trade in will not be profitable at your dealership, make sure to be transparent and manage a customers expectations. On an ongoing basis, you should use your inventory manager tool to review how your existing inventory is performing. It’s a good idea to pull up the vehicle’s market data every 10 days after it has been traded to see how it differs from the data used at the time of the appraisal. This step will tell you if you need to adjust your pricing up or down.

Your buy/sell will also recommend vehicles to sell, based on unique dealerships performance. If you determine a vehicle needs to be disposed, you can easily trade within your group or launch it to auction from Inventory+.

Finding inventory core to your unique dealership is important. It will allow you to sell vehicles profitably, while maintaining turn. We recommend finding a solution that helps you aggregate your dealerships performance so you’re not relying solely on instinct or market performers to stock your lot.

Robert Cowan serves as a Senior Customer Success Manager for DealerSocket and has been in the automotive industry for 42 years and consulting with Inventory+ for 14 years. Sandy Davis has been in the automotive industry for 22 years and serves as one of the company’s Strategic Growth Managers.

Judy Greeby, Strategic Growth Manager

Judy Greeby, Strategic Growth Manager

Location: Pennsylvania

I started in the automotive industry during a summer break in college (to pay for the next semester!). I fell in love with the business and never looked back. I’ve held most positions in a dealership from sales to General Manager, giving me a broad knowledge of the industry and a deep understanding of the challenges dealers face every day. I’ve been at DealerSocket for 13 years.

What do you do at DealerSocket?

As a Strategic Growth Manager my focus is to identify opportunities for my dealers to grow and to find ways they capitalize on those opportunities using Dealersocket solutions. I do so by reviewing processes and procedures, in order to provide them best practices to help reach their goals.

What motivates you to wake up and go to work?

I am incredibly motivated by dealers that that not satisfied with their status quo. A dealer that, no matter how successful, says “We can do better – let’s get started,” I love that!

What has been your favorite project so far?

I’ve been involved with many projects that have been rewarding, but I think my favorite is instituting internal auctions for groups. It builds relationships between sister-stores, keeps hard-earned dollars in the group, and is very profitable for the dealers. And…we usually have some fun!

What’s something most people don’t know about you? (or a fun fact)

When I started college my plan was to be a market analyst. Plan B turned out to be a great career!

What is your favorite, or a secret, inventory management tip?

My favorite tip is this: One of the biggest challenges dealers face today is acquiring pre-owned inventory, particularly in the lower price brackets. Put a good process in place to mine the service drive every day. A good process will net you needed inventory with the added benefit of additional sales.

Thirty is the new 60 when it comes to a profitable turn of your inventory. The following best practices are designed to get your inventory merchandised faster and more efficiently.

By Judy Greeby

Merchandising is about getting as many eyeballs as possible on your inventory as quickly and for as long as possible. Smart digital tactics — such as great photos, robust descriptions, and rave customer reviews that help drive showroom traffic — are imperative. So is getting vehicles frontline ready as quickly and as efficiently as possible. These seven merchandising best practices can help:

1. Fast and Efficient Reconditioning

Unless a vehicle needs bodywork, get it through the reconditioning process within three days or less. In reality, reconditioning often takes a back seat to customer-pay work in many dealership service departments. To speed up the process, try the following:

  • Devote one or two full-time service technicians to reconditioning vehicles for the used-vehicle department.
  • Offer incentives to your service departments to get vehicles reconditioned quickly and without comebacks. Do this with outsourced vendors, too.

2. Do-it-Yourself Photos

An array of high-quality photos are essential to attract interest in listed vehicles. If your lot service company isn’t due back for a couple of days or your service department is tied up, do the following to get a non-frontline-ready vehicle listed online today:

  • Use a mobile app to take four to six photos that can be posted online before reconditioning. Take shots of the vehicle’s left front quarter and rear right quarter. If the interior or tires are in good shape, get photos of them, too, and highlight features such as sunroofs and custom wheels.
  • Take photos from farther away to minimize imperfections, such as a nicked windshield your service department can repair later.
  • No photography booth? No problem. A clean, clutter-free area with the dealership’s name in the background works well.

3. Create SEO-Rich Descriptions

The quickest way to create a description is to use an automated description writer equipped on leading inventory-management tools. They simply require a VIN to pull vehicle details, such as make, model, model year, trim level, engine type. But manually written or manually enhanced descriptions are best.

  • Over the past several years, Google has made adjustments to its search algorithm to put a little more emphasis on relevant content and a little less emphasis on keywords. Geographic references — for example, the vehicle was purchased and serviced at the dealership that is now offering it for sale — work well for SEO.
  • Vehicle history matters to consumers. So, for example, if a vehicle was previously owned by a family who outgrew it, say so. Have salespeople and receptionists listen for and jot down such details to include in a vehicle’s description.
  • Include features, technology advances, and a call to action. Awards, ratings, special offers, and whether the owner’s manual is available should be included, too.

4. Price Strategically

You don’t have to have the lowest prices in your market, but you do need a customized pricing strategy to boost overall gross income per vehicle retailed and reinterest customers tracking your listed inventory.

  • Retail 70% or more of your inventory within the first 30 days, starting from the day a vehicle enters your dealership management system.
  • Avoid profit erosion by keeping in mind that a vehicle’s market price could become outdated if it takes 10 or more days to get it frontline ready. The reason is dealers with similar models may lower their prices.
  • DealerSocket’s Inventory+ offers a Health Report you can use to create customized price strategies that increase your dealership’s overall gross income per vehicle retailed. Complied daily, the report tracks inventory age, prices, third-party websites on which the inventory is posted, and the photos and descriptions accompanying those listings. Have the report emailed to you each morning.
  • The Health Report also provides profit-per-day information for each parking space on your lot. Shoot for a minimum profit per day of $40 for each spot. Meet that milestone and then work to increase it.

5. Keep Tabs on Listed Vehicles

Vehicles are “marketed” when they’re offered for sale online with pricing and good photography — though descriptions are important, too.

  • Make sure these elements accompany all inventory offered for sale on your dealership’s website and third-party sites. Check the websites once a week or more.
  • As previously mentioned, third-party posting information is available in DealerSocket’s Inventory+ Health Report.

6. Drive Rave Reviews

You strive to satisfy your customers. So, strive to get great customer reviews by asking your customers to write them. Reviews help attract internet leads. The facts speak for themselves:

  • Research indicates that more than 90% of shoppers read reviews. And of those who do, more than 90% use that information to make purchase decisions.
  • Studies also show that most consumers trust reviews as much as they trust a personal recommendation from a friend, and they are willing to pay around 15% more for a vehicle purchased at a dealership in which they have confidence.

7. Leads Matter

The ultimate goal of effective merchandising is turning SRP/VDP views and internet leads into fresh “ups.” The more fresh ups you drive, the more chances you have to sell a customer your vehicle.

  • Use your inventory management tool to keep tabs on the leads your listings generate is crucial.
  • Keeping an eye on leads provides direction and opportunity. For example, if your dealership has a vehicle that isn’t attracting leads, try raising the price for a few days. This old tactic will usually draw out a customer who might be following it online in hopes of a price cut. However, if you don't get a bite after a day or two, you might have a vehicle with the wrong color, price, or equipment. Maybe the vehicle is just wrong for your market.

Bottom line, a vehicle doesn’t have to be frontline ready to be merchandised online. In fact, DealerSocket is partnered with very successful dealers who can have a vehicle they just took in as a trade merchandised on their site within two to three days. What they’re doing is giving themselves an extra week or two to sell the car. It may not be frontline ready, but it’s available virtually to everybody in their market.

Judy Greeby has been with DealerSocket for 13 years and currently serves as a Strategic Growth Manager. With an extensive experience in automotive industry, she partners with dealerships to make sure they get the most out of their inventory system. To connect with a Performance Advisor like Judy and learn more about Inventory+’s merchandising capabilities, call (888) 655-1435.

Bob Cowan, Senior Customer Success Manager

Bob Cowan, Sr. Customer Success Manager

Location: Texas

My total years in our industry is 42 years, and I love every moment of it. Car folks are some of the craziest yet real people to work with, and I fit right into the mix. I’ve done everything from being a factory rep for Chevrolet Motor Division, dealership recruiting, and many levels of consulting. I’ve been with the inventory team for 14 years.

What do you do at DealerSocket?

I am a customer success manager.

What motivates you to wake up and go to work?

I love helping dealers reach their sales objectives.

What has been your favorite project so far?

Working with our product team on developing and testing new functionality and enhancements for our Inventory+ software.

What’s something most people don’t know about you?

I am an avid sailor!

What is an embarrassing, green pea moment you had when you were starting out?

I think the teaching moment I struggled with the most was when I started working the desk, remember this was when we did car deals on a 10 key, for the life of me I couldn’t understand how to factor negative equity on a trade into the equation.

What is your favorite, or a secret, inventory management tip?

If there were one thing I would stress with any dealer, it would be that if you want to do volume and good PVR on used cars, you need to watch the inventory average cost of sale every single day. The lower you can get that number, the better off you will be.