Old beliefs and habits definitely die hard.

Take the way many dealers still think about their new and used vehicle prices:

Dealers control vehicle prices. I’m not talking about the obvious point that dealers do, in fact, largely set the asking prices for their vehicles. My point relates to the ever-more powerful influence the market has on a dealer’s latitude to price vehicles the way they really want to. Some dealers have let this one go entirely. They’ll price their vehicles based on what the market data tells them—no more, no less. They recognize they can’t control or make the market for a vehicle. They understand the market dictates if the car’s a winner or loser, or lies somewhere in between, and they should price accordingly.

A higher price is a better price. Some dealers still believe that higher prices lead to higher front-end gross profits. This belief used to be true, before the Internet and pricing transparency gave the market more influence on vehicle prices. Back then, dealers could set their retail asking price as high as they wanted, and negotiate to keep every last bit of gross profit from a customer. Unfortunately, it doesn’t work that way as much or as well today. Vehicle buyers hunt hard for a fair price, and don’t respond well to dealers with new and used vehicles priced 10 percent to 20 percent higher (or more) than the same/similar cars in their markets for no apparent reason.

Price and age aren’t related. This thinking isn’t as prevalent as it used to be in used vehicles. Generally, dealers recognize that the longer a used vehicle sits in inventory, the less money it makes, due to depreciation, competing units and opportunity costs. As a result, many dealers make the effort to adjust prices as vehicles age to facilitate a timely retail exit. But these same dealers often do not apply the time-is-money principle in new vehicles. The prices these dealers place on new vehicles on Day 1 often don’t change for months. Other dealers, however, have recognized that age- and market-related adjustments result in faster retail sales, which affords them the right to earn additional inventory from their factory partners.

When you re-price, you lower your price. Dealers affirm that the vast majority of re-pricing decisions result in a lower price. But the most market-astute dealers know this isn’t always true. That’s why they assess each vehicle’s online performance. They ask these and other questions: Is the vehicle’s online listing getting a sufficient number of Vehicle Details Page (VDP) views? Is the online activity increasing or on the wane? Are there more or fewer competing cars in the current market? How do the prices and Market Days Supply metrics on these cars compare with mine? Most of the time, the answers lead to price reductions. But there are times, in both new and used vehicles, where dealers are well-justified to raise a vehicle price, or hold off on a price reduction, because their vehicle stands taller in the market than others.

I’m sharing these misunderstandings because I’ve seen, time and time again, how they impede a dealer’s ability to fully maximize new and used vehicle sales velocity and profitability.

In today’s market, margins are too thin, and time is too precious, to allow these common misunderstandings about new and used vehicle prices to get in the way of tomorrow’s retail sales.

{ 1 comment }

I had an old rule of thumb when I was a dealer: You could get a bead on new vehicle inventory imbalances by the number of full-page ads in the Chicago Tribune on Sundays..

If the paper’s automotive section was chock-full of full-pagers, you could reasonably bet that dealers were sitting on, and therefore more desperate to sell, more vehicles than the local market apparently wanted or needed.

The converse was also true: If the section was relatively light on full-page ads, you could reasonably believe that dealer inventories, and local market demand, seemed in balance.

I thought of this old rule after a colleague says he’s noticed the Tribune’s published larger automotive sections the past few weekends than he’s seen in a long time. He says the ads came mostly from General Motors and Chrysler Dodge Jeep dealers.

The advertising affirms what many of us know: Dealers have a lot of new cars on their hands. An Automotive News story last week notes that the currently nearly 4.2 million new vehicles in dealer inventories is the highest it’s been in 13 years, despite record-setting incentives. The article says dealers currently have a 74-day supply of new vehicles—a tally that might be even higher if not for the proliferation of factory-encouraged rental car programs.

None of this is news to many dealers, particularly those who are renting space to house the additional inventory or doubling-down on their full-page newspaper advertising.

But here’s what is new: The problem’s not universal. Some dealers are blessed to have OEM partners who do a better job of aligning supply and demand. Their inventories aren’t nearly as heavy as their less-efficient competitors. Meanwhile, there are sharp inventory size disparities among dealers who share less market-efficient factory partners—differences that indicate some dealers are doing a better job managing current inventory conditions.

These dealers tend to do the following things to minimize the profitability drag that results when you’re sitting on too many vehicles:

  • Align prices to market conditions. Today, you have the option to apply competitive Market Days Supply, Days in Inventory and online effectiveness metrics to price your new vehicles. Dealers who attune their prices to local market conditions—rather than their own standardized pricing scheme—tend to attract more online and showroom shoppers.
  • Set and stick to a new vehicle age policy. Some dealers care about the age of their new vehicle inventory; others don’t. I’ve seen age policies might limit the number of 90-day and older new vehicles to 10 percent of a dealer’s inventory. Typically, dealers who manage new vehicle age stand the best chance of consistently earning floorplan credits and accompanying profits.
  • Don’t make the problem worse. As my colleague, Brian Finkelmeyer, director of business development for vAuto’s Conquest system, says: “If you or your market don’t need the car, you’re not doing yourself any favors by trading for it.” The same is true with your factory orders. The key here, of course, is knowing the cars and combinations that sell the best for you, and your competitors, in your market as you make stocking decisions.

Perhaps the best news about the growth in new vehicle inventories is that it doesn’t have to continue unabated. The key question is whether factories will do the right thing and trim production, or carry on the current path and make an increasingly difficult situation for their dealers even worse.

{ 1 comment }

“It’s life by a thousand little things, or death by a thousand cuts.”

A dealer recently shared this line as we were discussing how the car business has changed in the last 25 years. The dealer’s observation strikes me as a perfect, clear-eyed summation of how efficiency, technology and transparency have made retail automotive a much different environment for dealers.

Consider the following common, everyday tasks and how much the little things matter more than ever before:

Stocking vehicles: For years, many dealers have followed a fairly reasonable strategy as they order factory vehicles: We’ll stock as many of the cars that we know we can sell, based on what we’ve sold. If we get stuck with some cars, it’s OK. We know that, eventually, the factory will offer the incentives that will help us get our inventories back into shape.

But here’s the problem with this strategy today: It’s too passive. It relies too much on past history, and your factory partner. It can ignore, and miss, faster-moving retail trends that help you maintain, if not gain, sales and market share. It’s also imprecise. The task often falls to a single individual, who’s probably relying on guesses, gut and instinct more than competitive market data to determine the best vehicles to order and stock.

“Within a model line, there’s usually one or two specific things that makes one particular combination stand out more than another,” says the general sales manager at a Southeast Volkswagen dealership. “We’ve made it our business to know these specific things, and configure our inventory accordingly. Our goal is to turn and earn cars. We can’t do it if we’re not ordering the best sellers from the manufacturer in the first place.”

The situation is very much the same in used vehicles. Variances in vehicle color, condition, mileage and specific equipment make the difference in determining a vehicle’s wholesale or retail value, and its likely appeal among potential buyers, given competing vehicles in the market. It’s easy for an appraiser or buyer to make costly mistakes if they’re relying solely on what they know, rather than augmenting their intelligence with market data.

salePricing vehicles. It wasn’t all that long ago that pricing new and used vehicles was fairly easy. In new vehicles, you pretty much only needed the MSRP or “Call For A Great Price!” In used vehicles, your retail price was just a standard mark-up away from the cost of the unit. Pricing cars didn’t require much critical thinking and, if you made a mistake, buyers forgave you, and they were none the wiser.

Today, it’s so very different. Many consumers know almost exactly how much they should pay to buy a new or used vehicle, and get a fair deal. They know if your vehicle’s price is in, on or off the market, given the car’s color, condition, equipment and other particulars. They won’t bother if your prices don’t fit their perception of fair purchase parameters for that vehicle.

The environment means that if your prices fit in the context of a consumers’ competitive set, you’re in the game. If not, you’re out. Likewise, if you’re too deeply in the game, you stand a good chance of giving up gross. On top of all this, you’ve got the constant tick-tick-tick of inventory age undermining your gross profit potential. Simply put, it’s impossible to price effectively without some kind of technology or tool to help you optimize each vehicle’s market price position.

Engaging buyers. It’s easier than ever for consumers today to find the vehicle(s) they want to purchase, and the price they think they should pay. It’s also fairly easy for them to find at least one dealer, in virtually every market, who claims to offer a different, hassle-free car-buying experience. We also know that most consumers will only visit one, possibly two, dealers before buying a vehicle.

As a result, some dealers take every customer engagement very seriously. To them, every customer conversation, e-mail, instant chat or text message could be the last.

“We truly believe that it’s almost as if the customer is looking for a reason not to do business with us,” says the COO for a West Coast dealer group. “We work very, very hard to make sure they don’t find that reason.”

Today’s car business may be different, and arguably more difficult, than it used to be. But it’s still a healthy, viable business where success awaits those who properly apply themselves to its pursuit.

My dealer friend is correct. The little things matter more than ever. To paraphrase an old saying, “the devil is in the details, and so is your next deal.”


A Manager’s View Of A Volatile Used Vehicle Market


I had an eye-opening conversation the other day with used vehicle manager Jim Mason of Steven Toyota, Harrisonburg, VA. We were discussing how the dealership’s average front-end gross profit was lagging its target by about $300 for the current month. Mason knew exactly why: The store’s average days in inventory had crept up about four […]

1 comment Read more from Dale →

A Longer-Term View Of Digital Retailing For Dealers


Dealers often have an “all or nothing” view of digital retailing. That is, to them, digital retailing represents the full monte of selling a new or used vehicle online. You’d have a “buy it now” button on every vehicle details page (VDP) for every vehicle, customers would work their deals, and dealers would deliver “sold” […]

1 comment Read more from Dale →

Dispatches From Down Under: A Great Trip Comes Full Circle


The other evening I had “a parma and pot.” To explain, I was in a pub to take in a most quintessentially Australian experience. I was there to watch the first match of the annual best-of-three State of Origin series between the Queensland and New South Wales rugby teams. The Series tradition calls for eating […]

0 comments Read more from Dale →

Dispatches From Down Under: Dealers Hungry For Insights


It’s easy to teach when your students want to learn. That’s a primary take-away from my meetings with dealers in Sydney and Brisbane—the first two stops on my three-city tour here in Australia. In many ways, the car business in Australia is much like it was in the United States nearly a decade ago. The […]

0 comments Read more from Dale →

Dissecting The Elements Of Velocity Down Under


I’m excited to embark tomorrow on a very unique trip. I’ll be spending two weeks in Australia, helping dealers there better understand the Velocity Method of Management, and how they can use it to increase their used vehicle sales and performance. Interestingly, the challenges and opportunities that margin compression brings to the car business are […]

0 comments Read more from Dale →

What’s Your Course Correction In New Cars?


I imagine there have been a lot of long faces on dealers as they reviewed their financial statements from last month. Not only did many dealers see fewer deals in their new car departments compared to a year earlier, they also earned a little bit less on those deals than they would like. On top […]

0 comments Read more from Dale →

3 Keys To Increase Your New/Used Vehicle Throughput and Profitability


We’ve arrived at an interesting time for retail sales of new and used vehicles. Both sides of the business face a market supply/demand imbalance, which raises risk for dealers. In new vehicles, there’s almost an inventory pile-up on some dealers’ lots. Dealership days supply is running well north of the norm. Some dealers don’t even […]

0 comments Read more from Dale →