It’s still fairly common for dealers to offer two complaints about buying wholesale vehicles from auctions—it’s tough to find the right cars, and even more difficult to buy them on the money.

The complaints seem somewhat surprising, given there are more wholesale vehicles on the market than we’ve seen in recent years. In 2016, industry analysts estimate the wholesale market will have well over 3 million more available vehicles than last year, thanks to the rise in available off-lease and off-fleet units. Next year, analysts predict another 4 million or so available units in the wholesale supply chain.

One might think these conditions create a more favorable environment for sourcing the right inventory at the right prices. But it appears only some dealers are having an easier time in the lanes and online as they look to fill the gaps in their used vehicle inventories.

The disparity led me to ask a key question: Why are some dealers able to get the auction units they need, at the front-end-friendly prices they expect, while others continue to struggle?

The answers revealed three common characteristics among dealers who report auction sourcing has actually become easier and more profitable in recent months:

1. Buyer-smart inventory streams: Dealers credit new tools that provide an instant stream of available inventory for putting more of the right vehicles in front of them for consideration. “I used to spend hours printing out run lists for my local auctions to find cars I need,” says an independent dealer near Minneapolis. “I’ve set up my feeds to show vehicles from auctions across the country that fit my condition and profit criteria. I’ve got more choices of vehicles that make sense, and I’m not spending time evaluating cars that I’ll never want to buy.”

2. Profit-first focus: The independent dealer and others noted that their auction sourcing tools offer the ability to be more efficient by making their potential profit a first-tier consideration. “We used to look at a car, check the Carfax and condition reports and then look at the financials,” says the used vehicle director for a six-store Midwest dealer group. “Now, we instantly see every unit’s retail profit potential right up front, which allows us to prioritize and pursue the cars with the best retail potential and condition.”

3. Dispassionate bids/purchases: Several dealers noted they have an easier time walking away from auction vehicles when bidding turns their profit and purchase parameters into toast. “We’ve learned the hard way that it’s better to walk away than over pay,” says an Atlanta-based independent dealer. “It’s also easier to walk away when you’ve got less research time invested up-front, and you know there are three other cars, at the same or different auctions, that’ll work just as well.”

Through these conversations, I couldn’t help but sense a shift in the way some dealers approach the wholesale marketplace. They don’t just buy auction cars because they need them, or guess whether a car will or won’t perform. They embrace technology and tools to become more efficient, market-precise and profitable auction buyers.

You could also say these dealers are taking “what you see is what you get” at auctions to a whole new level.

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I had the privilege of attending my first National Independent Automobile Dealers Association (NIADA) convention this week in Las Vegas.

Quite honestly, I wasn’t sure what to expect, but I was pleased to discover many similarities with my experiences at 47 National Automobile Dealers Association (NADA) conventions for franshise dealers.

First, many of the dealers I met are as astute and keen about their business as many franchise dealers. They understand the wholesale and retail marketplaces are changing fast, and they are wisely seeking new ideas, tools and ways to make their businesses more profitable and successful.

Second, like many franchise dealers, the independent dealers are deeply committed to their businesses. It’s their money on the line every day. They are hands-on, pragmatic operators, some of whom are likely to pick up a wrench or a chamois cloth to get a car ready for retail.

Third, I was struck by the family nature of the event itself. I met dealers, their wives and their children on the NIADA floor—a reminder that many, if not most, dealers of all types are, by their nature a family affair.

Finally, I was pleased to be a part of Cox Automotive’s impressive presence on the NIADA floor—a testimony to our commitment to serve independent dealers as we collectively transform the way the world buys and sells cars.

My hat’s off to NIADA’s Steve Jordan, CEO, and Joe Lescota, director of dealer development, for hosting an enlightening, productive and well-run event.

This year’s NIADA convention may have been my first, but it most definitely won’t be my last.

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Most dealers would agree that you make your money in used vehicles when you acquire a car.

If you pay too much for an auction or trade-in vehicle, you’ve shrunk the spread between your costs to acquire and recondition the unit, and its retail selling point. Conversely, if you “steal” a car, you’ve widened the spread, and set the stage for a healthy front-end gross.

I’ve been thinking about this age-old axiom of our business as I hear and read about declining used vehicle profitability.

This past spring, public dealer groups reported front-end gross profits on used vehicskoda superb 300x169 5 Pointers To Preserve and Protect Profitability As You Acquire Used Vehiclesles declined $100 or more on a per-unit basis compared to the prior year. The drop runs consistent with the results I hear from private dealers. Even worse, the diminished profitability comes in spite of dealers buying and retailing more expensive used vehicles.

Astute dealers know the decline in used vehicle profitability isn’t just a one-off occurrence. It’s been a persistent feature of used vehicles for the past several years, thanks to the rise of internet-driven transparency and increased competition.

skoda superb space 5 Pointers To Preserve and Protect Profitability As You Acquire Used VehiclesGiven this backdrop, I thought it would be useful to revisit Ground Zero for used vehicle profitability—the moment when you own an auction or trade-in vehicle. I asked several top-performing dealers to share how they make their money when they acquire a vehicle. They offered five pointers:

A clear view of the “right” cars. The “right” cars are different for every dealer, given individual objectives for profit and inventory turns, and local market conditions. Dealers say it’s imperative to know, with exacting precision, the cars that are “right” for you, and to prioritize your auction and trade-in purchases around them.

“When we go to auction, we don’t buy 50 cars because we sold 50 cars,” says the general sales manager for a Southwest Toyota store. “That’s how we used to do it. Now, it’s always about the ‘right’ car. We’re sticklers for the right equipment, color, condition and mileage. We’ll sometimes pay more than we’d like for the ‘right’ car, but we’ll do it because it’s the ‘right’ car and know it’ll sell in our market.”

Exit strategy-minded acquisitions. The sharpest dealers use technology and tools to know each vehicle’s opportunities and risks before they book a trade or buy at auction. They know their costs (the price of the car, reconditioning, a pack, transportation/other costs). They compare those costs to prevailing retail values to determine a vehicle’s front-end profit potential. They evaluate each vehicle’s Market Days Supply to determine how long it will take to retail the unit.

A Southeast Chrysler dealer summarizes his exit-minded acquisition strategy this way: “Before I buy a vehicle, I know what I can make, and how long I have to retail it before it’s a break-even unit. From there, it’s a question of retailing the car quickly to maximize our gross and minimize a potential loss.”

Accountability. Dealers say they’re holding appraisers, buyers and managers more accountable for buying vehicles “on the money.” For example, a Northeast Honda dealer expects appraisers and auction buyers to purchase vehicles at or near a respective cost to market ratio of 80 percent and 85 percent. “If they land above the benchmark, there’s always a conversation,” the dealer says. “The market’s too competitive and our margins are too thin to give up our profit potential unnecessarily.”

Wider reach. For wholesale vehicles, dealers are tapping a larger, more diverse group of online and physical auctions than in the past. “Given the competition, you almost have to have eyes everywhere to get the cars at the prices you need,” says the used vehicle director for a Midwest dealer group. More and more, dealers rely on technology and tools to minimize the time required to find and evaluate vehicles, enabling them to focus on buying the “right” ones on the money.

An opportunistic eye. As students of the market, the dealers each noted that they keep their eyes open for opportunities to stock and retail vehicles they don’t typically sell. “I try to keep about 20 percent of my auction purchases for stuff I wouldn’t normally stock,” says the general sales manager at the Southwest Toyota store. “I won’t really know if a vehicle doesn’t work unless I try it.” To minimize the risk, he pursues vehicles with a relatively low market days supply (70 or less), and aims to purchase them at/near an 85 percent cost to market ratio.

In my next article, we’ll examine how dealers can preserve and protect used vehicle profitability after they’ve acquired the “right” cars on the money.

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A Precision-Focused Approach To Digital Retailing

06.03.2016

You won’t find newspaper ads, radio spots or TV commercials promoting Cardinale Automotive Group. The 19-store group, headquartered on the Monterey Peninsula in California, ditched traditional advertising in 2010 as it began its transformation to become an all-digital retailer. Since then, the group has made incredible progress. This year, Cardinale ranks 2nd on the Ward’s [...]

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3 Ways to Maximize Your New Car Sales With Improved New Vehicle Management

05.18.2016

It’s sometimes startling to see the disparity in the ways dealers manage their new and used vehicle inventories. As a dealer recently put it, “I have $1.4 million in used vehicle inventory, and we pay attention to it every day. We track VDPs (vehicle detail pages), our price position and our merchandising. But I have $13 million [...]

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Two Product Launches, Two Decidedly Different Timelines

05.02.2016

I’m both a little amazed and humbled by the success of Stockwave, a tool that helps dealers efficiently source wholesale vehicles. In less than 30 days after the product’s official launch at the National Automobile Dealers Association (NADA) convention last month, more than 1,000 franchise and independent dealers have signed up for Stockwave. Frankly, I’m [...]

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4 Operational Pearls From Roger Penske

04.27.2016

I had the privilege of hearing Roger Penske, head of Penske Automotive Group, share his perspective on the car business today during a Q&A session with Cox Automotive president Sandy Schwartz. The session is part of a Cox leadership team meeting this week in Fort Lauderdale, where we’re gathered to sharpen our knowledge and understanding [...]

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3 Essential Steps To Maximize Gross Profits On Auction Cars

04.26.2016

If you ask dealers for their top complaint about the used car business, many will say it’s difficult, if not impossible, to acquire wholesale vehicles “on the money.” Dig a little deeper, and the root of the complaint becomes clear—dealers believe they can’t make the gross profit they would like to see in their used [...]

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An Independent Perspective On The Used Car Business

04.22.2016

TJ Riley isn’t your typical independent car dealer. For one thing, he’s a lot more disciplined than many franchise and independent dealers when it comes to buying vehicles at auctions. “If you walk out to the Dallas Auto Auction on a Wednesday, it’s just eye-opening the amount of dollars changing hands, based solely on the [...]

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vAuto’s Mandi Fang Earns An Automotive Honor

04.19.2016

I love it when somebody I know gets recognition they deserve. Many years ago, I found myself on the opposite side of a table with a very impressive woman. I remember her tenacity as a negotiator, as well as her command of minute details related to the deal at hand. She stood tall at a [...]

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