Although new-car sales are slumping in 2009, automotive retail experts report that used-car gains are helping to offset industry losses. At CNW Research, president Art Spinella recently projected 40 million units for the year amid wider availability of consumer credit, providing franchise and independent stores an opportunity to capture additional revenue. “Every sale is important,” echoed Huey Long, BDC and internet sales manager for Astorg Motor Co. in Parkersburg, W.Va. “Used cars are on the rise, probably more so in the past two years than in quite some time. Shoppers are looking for lower-cost options to buying new that still come with a great warranty.” As you develop your plan of attack for the next six months, let’s look at how you can win more than your fair share of the business.
Buy In-Demand Vehicles
Particularly in a changing economy, Ralph Ebersole recommends focusing your efforts on the sought-after cars shoppers want and avoiding auction bargains you hope will sell well. The Cars.com director of automotive consulting and dealer training recommends using market-based guidance from your listing sites (e.g., Cars.com’s monthly CarsStars report) and vendors such as FirstLook and vAuto that help you to stock the right inventory mix.
“Inventory is critical,” he said. “Make sure you have the right inventory at the right time so you can turn your listings faster and for higher gross profit. These tools are very good at helping you identify what are the most desirable cars in your market and what wholesale and retail prices should be, based on current market statistics.”
If you’re having trouble obtaining these vehicles through customer trades, you’re not alone. At Davis Chevrolet in Houston, internet sales manager Tom McKinney said the decline in valuable customer trade-ins has forced him to be creative. To compensate, he makes greater use of online auctions and will soon begin prospecting service department customers.
“We need the cars, and we need the sales,” McKinney explained. “By doing that, it’s possible we can get two (sales). We also stand a better chance of getting that one-owner vehicle that really stands out online.”
Ebersole endorses the strategy and agrees that online auction sites such as OPENLANE, OVE and SmartAuction by GMAC are “a great way to get a quality vehicle on your lot while saving time.” He’s also spoken with dealers who’ve negotiated deals with private-party sellers on automotive shopping sites such as Cars.com.
“Reaching out to private party sellers does two things,” Ebersole explained. “It’s a source for buying vehicles at wholesale, but it also, in many cases, brings consumers into the dealership who were in the market but we didn’t know it.”
At Ron Hulett Chevrolet in Camdenton, Mo., the used-car sales manager said every pre-owned vehicle is reconditioned before it’s made available. He adopted this approach to assure customers the car they saw online matches what they see on the lot.
“They always look the best,” Ryan Hulett said of internet listings. “Are they the best? You don’t know until you get there.”
To eliminate the element of unwanted surprise, Hulett instructs his technicians to correct the scratches and dings that could otherwise sink the deal. “It actually pays to make the used vehicle as close to perfect as you can,” he said. “That vehicle has to beat expectations in order for you to hold your price.”
Anything less will “cost you money, or it will cost you a sale,” Hulett advises, especially if the customer traveled any distance of consequence. “It’s easy to turn someone on enough to come look. It doesn’t do you any good as far as getting them over the curb.”
Leverage Your Virtual Inventory
When Davis Chevrolet’s McKinney recently had two customers interested in the same vehicle, he knew he’d need to act quickly. Rather than risk losing a sale to a competitor, the ISM brought in the colleague who manages the store’s internet auction purchases.
“We went online and found the duplicate to it,” McKinney said. “We loaned the customer a vehicle in the interim, and we were able to keep the deal that way.”
Offer Peace of Mind
As used car buyers evaluate available options, Ebersole said they prefer vehicles that can deliver years of reliable service and minimal out-of-pocket expense outside of regular maintenance. To appeal to these shoppers, he advises dealers to:
- Provide vehicle history reports. “VHRs have become a very important issue within stocking your used cars and making gross on the vehicles,” Ebersole said. “Consumers have always had a problem with used vehicles because they didn’t understand what the history was. They’ve also been afraid of buying that so-called lemon. VHRs help alleviate that issue. It’s another selling feature to let consumers know the real history – if it’s been in an accident or well maintained.”
What’s the value to you? CARFAX communications director Larry Gamache said, “On average, a car with a positive VHR can be worth $400 to $500 more.”
- Promote factory-certified listings, if available. For franchise stores, CPO programs connect you with ready-to-buy shoppers who appreciate the extensive mechanical and safety inspections and extended warranties. These consumers also recognize certified vehicles as more valuable than traditional used cars, helping you hold additional gross. Ebersole encourages dealers to pre-certify as many vehicles as possible to drive interest and win the sale as opposed to offering certification as a closing tool. Not only can you move right ahead with the deal, he said, but you won’t have to defend the increased sales price CPO cars command.
- Emphasize one-owner vehicles. “Used-car shoppers have always loved the idea of a one-owner vehicle,” Gamache said. “One-owner cars are typically consistently serviced and have regular driving patterns. Low-mileage, one-owner vehicles are the hidden gold on a dealer’s lot.”
McKinney agrees, explaining his store subscribes to these reports so they’re available to Davis Chevrolet customers at no charge. “It’s critical,” he said. “They need the peace of mind. There’s lots of vehicles out there, so anything you can do to help the shopper choose your car – it’s a small price to pay. When you have a one-owner vehicle, it stands out. You’ll get more clicks on that vehicle, and you’ll be able to get more money for that vehicle.
To drive traffic to your store and encourage buyers to contact you for more information or an appointment, you must engage in-market shoppers with your listings. “As consumers look at vehicles,” Ebersole said, “they tend to not try to find which dealership to do business with but which dealership to eliminate.” To keep your store in contention, your listings must include:
- Competitive pricing. While shoppers base their decision on factors other than price, Ebersole recommends pricing your vehicles within $600 to $800 of your competitors. Staying within this range tells buyers they can get a fair deal and allows you to fetch a higher price as the specific car merits. At the same time, Ebersole reminds dealers not to overlook market trends such as the recent upturn in wholesale prices. “Have you taken your current inventory and raised the prices because that’s what the market will bear?” he asked. “Competitive pricing comes back to the normal used-car sciences. Age of inventory makes a difference, condition makes a difference, and availability of inventory, on top of that, makes a difference in this fluid business.”
- Multiple pictures. Including several good-quality photos with each listing allows shoppers to take a virtual test drive. They can confirm that the vehicle’s condition matches its description and determine whether it has the features and passenger and cargo capacity they want. The quantity of exterior and interior shots to provide varies with the vehicle and the features you want to highlight. “There really is nothing that says how many pictures you need,” Ebersole said.”However, we’re finding that if there are a minimum of 15 to 20 pictures on a vehicle, more consumers will click on them.”
- Compelling sell copy. “As we all know, stories sell used cars,” Ebersole said. Rather than repeat the VIN decoder list, he tells dealers to share information about the vehicle’s condition (e.g., clean car, nonsmoker, local trade, bought and serviced here) and describe the driving experience. Finally, remember to “tell the story about your dealership. Tell the consumer what makes you unique from your competitors, whether it’s a great location or the area’s best prices; things that you would normally put into traditional advertising,” Ebersole said. “The reason we have always advertised like that in traditional media is to make the car stand out. The new internet media is the same thing.”
With used car sales on the rise, now is an ideal time to review your inventory and merchandising strategy. Online, you want to ensure your vehicles and sales processes align with shoppers’ expectations and help you close more profitable deals. With so many stores competing for the same buyers, Ebersole said the margin for error continues to shrink.
In the April DealerADvantage Live webinar, Cars.com’s Dennis Galbraith, vice president of advertising products and, discussed used-car profitability with Art Spinella, president of CNW Research, and Paul Taylor, chief economist for NADA.