How to buy hot vehicles for the right money all day long

by dpollak on 03/23/2010 · 14 comments

The perception of not being able to source hot vehicles for the right money is understandable but wrong.  The reason that it’s understandable is that we never knew how good we had it.  When the mCorvet c7 conceptarket delivered 17 million new cars, dealers stood on their lots and people threw trade-ins at them.  If they didn’t get enough of the right trade-ins, dealers went to their local auctions where the fleet, lease, rental and manufacturers dumped large quantities of vehicles upon them.  How hard did dealers really need to work?  Basically if they showed up on their lot or at the auction with common sense and a check book, they bought cars.

Today, however, the flow of trade-ins on the used car lot and vehicles at the auction has been substantially reduced.  Once these two common means of sourcing vehicles have been taken away, the perception of not being able to buy a car is completely understandable. 

The conclusion that it can’t be done however, is dead wrong.  Hot vehicles can be sourced and purchased for the right money all day long, but it requires a different approach and strategy.  The first step of the new strategy is to broaden the consideration set of vehicles that you’re willing to sell.  If you continue to limit yourself to the types of vehicles that are consistent with your new car franchise and/or past sales history, you’re putting a lot of pressure on yourself to compete in a narrow arena.  Give yourself a break, and expand the consideration set. 

Second, you must have a technology that allows you to identify what are the hottest vehicles for sale in your market.  What defines a hot vehicle however, should be based on the time tested principles of supply and demand.  There are always vehicles that have high demand and short supply, and these are the ones, irrespective of their brand or lack of history, that should be included in the expanded consideration set. 

Third, identify the vehicles in the larger set with high demand and short supply that surprise you.  If high demand and short supply vehicles on that expanded list surprises you, chances are they are not top of mind of every other used car buyer in the country.  Such vehicles won’t necessarily be easy to buy, but will most certainly be easier to buy than the commonly understood hot vehicles.    When you have knowledge about your market that is not commonly shared with your competitors and you can act on it, that’s true advantage. 

Once such vehicles are identified, there is a new strategy for determining how much you can afford to pay.   Start by looking at the traditional valuation sources like auction data, NADA and Black Book.  While this will not be your valuation methodology, it gives you a sense of what your traditional competitors are likely to be thinking.  For your purposes, you’ll start by pinpointing the exact price at which you’ll need to advertise your target vehicle for retail purchase.  This will be done by assessing the identical competing vehicles currently in the market.  Once you’ve set the retail price for the vehicle that you haven’t even purchased, then you back out your reconditioning, related costs and the minimal front end gross profit that you’re willing to make.  What’s left over represents the maximum amount that you can justify paying.  This top down approach applied to vehicles that are not commonly understood to be hot by your competitors will frequently produce a value that you’re able to pay that is well above the price derived from traditional valuation sources.

Now that you’ve determined the hot cars and the amount that you can pay, once again you need to turn to technology to see where those vehicles are offered for sale.  Be prepared to use on-line auction platforms and/or buyers on the road.  These hot vehicles will often not be available in your backyard.  Finally, because this approach takes more time and effort than traditional sourcing, it is wise to designate an appropriate stocking analyst to do the research and legwork on behalf of the used car manager.  Using these strategies and technologies, the used car manager and stocking analyst will source an endless supply of hot cars for the right money.

  • chadvanness

    What is the benchmark number of purchased units per month for a sourcing analysis.

    Thank you,

    Chad VanNess
    Vaughn Automotive

  • nrmmiller

    Dale,

    In regards to what you refer to as vehicles that “surprise” me. I am having a tough time finding those hidden gems in my heat sheet/optimized target inventory. We have made huge strides in reducing our days supply by changing our purchasing behavior and expanding our inventory lines based on our market. But as we are trying to expand our inventory further and really begin to grow our business I am having a tough time deciding in which direction to expand. Being in a rural market our “market” based on vAuto's Market Optimizer shows the vast majority of vehicles being sold as domestics. Toyota, Honda, Nissan, Kia, Hyundai, highlines etc. are almost non-existent (all 3% or less of the market). I am finding a select couple surprises a week, such as a 2008 Mazda6 i and a 2009 Mitsubishi Galant ES, but I am not finding what I feel like is enough surprises to grow my inventory/business to the next level. I haven't experimented much with reducing the number of sold units under 10 with the reservation that a low days supply isn't everything and that there needs to be some volume to validate the vehicles “hot” status in the market. I am wrong here? Where else can I turn to dig up a more high demand short supply surprises?

    Thanks,

    Nick

  • Nick,

    Good job on reducing your overall market day's supply. Keep in mind that the lower the market day's supply of your inventory, the lower cost of acquiring a sale and the less pressure for competitive pricing. I'm on the road, but I would like to take a look at your stocking system and heat sheet for myself. Please give me just a day or two to get back with you about what I see going on in your market.

    There is however, one question I have about your market. You state that most of the hot vehicles are domestic but you've had the opportunity to find a few surprises like the Galant and Mazda 6. If the vast majority of vehicles being sold in your market are domestic, why are you looking for the “surprise vehicles” that are imports like these two? Are there not some off beat domestics that are surprises? In other words, if it's a domestic market, are you trying to go against the grain with imports? Again, give me just a day or two to take a look at what's going on down there and I'll get back to you shortly.
    Dale

  • nrmmiller

    Dale,

    Thanks for the response and follow up questions. I am not trying to go against the grain and stock import vs domestic, but I am trying to capitalize on any holes in our market that arent being exploited by other dealers. Maybe I am looking in the wrong area, but for my market a Mazda 6 and a Mitsu Galant with what appears to be pretty good velocity does surprise me and get my attention. In regards to off beat domestics I don't feel I am seeing as many that get my attention like the two previously mentioned. I see the Explorers, Trailblazers, Escapes, Equinox etc. in the suv realm but none of those come off as something my competition isn't stocking or looking, but maybe I am not digging deep enough to find these gems that I am seeking. Take you time on a response and I really appreciate your feedback. Look forward to hearing you speak down in Orlando!

    Thanks,

    Nick
    Moberly Motor Co.

  • Nick,

    I get it, thank you. It sounds like you've got a fairly white-bread market, and I will take a close look at it in the next few days. I’m assuming that you're checking each of the vehicle segments and price categories in your stocking tool with the stocking objective bar set any where from 3-5, is that right?

    Dale

  • nrmmiller

    That is a good way to describe it. I work pretty hard at trying to fill all of the different vehicle segments and price categories in the stocking tool. You are correct on having the bar set in the 3-5 range. Thanks again.

    Nick

  • travishoward

    Dale, very nice post. The value of the technique of backing out from the retail price cannot be overstated and it is widely applicable. I was lucky enough to practice this technique on “flipping” homes and while so many folks had it handed to them, the few of us who were diligent in this practice were able to retain profits up and down the block (because we never bought the wrong house). These days I vend and run a software company, but I know if I were selling units I'd be practicing the tried and true… What am I going to sell this for?

  • davidflowers

    Nick,

    Be careful of overthinking the “surprise” factor when stocking. I feel like we did that a bit early on when first started using the velocity approach. We focused on those off-the-wall oddball pieces, and sometimes it came at the expense of looking at common sense good sellers. We finally realized that when it comes to the obvious, high volume stuff (Chevy Silverados, Nissan Altimas, Ford Explorers), its just a matter of digging deeper. Its no “surprise” that a used Nissan Altima is a good car to have. However, it may be “surprising” to know a 2006 Altima 2.5 S is a faster mover than a 2007 Altima 2.5 SL. That gives us the advantage over the guy down the street going to auction to pick up any 06-08 Altima.

    – David

  • David,

    You are so spot-on right. Thanks for that point. How valuable is that level of knowledge? Wow!
    Dale

  • joepistell

    Nick,

    I just did a quick study on you & I think you've got potential for 10-20 units MORE a month. If you have a moment, let's take a walk…

    You're in Rural Mo for sure, BUT, you're exactly in the middle of Kansas City and Saint Louis. These are 2 GIGANTIC markets and I believe they're well within your reach.

    Each of these markets are 2.5 drive time hours away, BUT the good news is your inventory appears in 100 miles radius searches from these major markets.

    “Show Me State” proof coming up:
    I picked your 08 Ford F150 King Ranch & searched from the center of Kansas City's zip, 64101. Here is AutoTrader's link FYI:
    http://www.autotrader.com/fyc/searchresults.jsp

    BAM! There you are! You’re in the 100 mile search from the center of Kansas City (technically, you're 118 miles away as the crow flies but AT uses a big fat crayon to draw radius lines)

    So… This is a large purchase, people will make the drive and I can prove it.
    I have the luxury of seeing a lot of used car transactions each month. This volume gives me a lot of points to measure. Take a look at my October sales map (link below). You'll need to zoom into NY to get a feel for the distance people travel to buy a good used car at the right price.

    http://www.batchgeocode.com/map/?i=4273c5575998

    IMO, take a few hours, expand your vAuto market radius and look for opportunities in these larger markets. To reduce your risk, hopefully you'll find some units that score well for in your primary (home) market too.

    Last thought.
    Sales success will center on whomever it is that takes the phone & email ups. They need to know the units in great detail and convey comfort and confidence with the entire long distance transaction. There may be times you'd meet to deliver at the 1/2 way mark, or, looking at the map, an easy hand off spot would be in Columbia MO, right off Interstate 40.

    Hope this helps!
    Joe Pistell
    A Gigantic Pollak Fan 🙂
    http://www.usedcarking.com/

  • nrmmiller

    David & Dale,

    I agree I may have been over thinking/analyzing the surprise factor. Dale, unless you see something different in my market that I am overlooking I plan to continue to build up and stock those “common good sense sellers.” Thank you for helping me bring my mind back to the velocity and volume goals!

    Nick

  • nrmmiller

    Joe,

    Thank you so much for your thoughts. I always appreciate valuable insight from people who are successfully living this business every day.

    You have raised a very interesting point for us to mull over. Yes, we are in RURAL Missouri with limited direct population so we do have to draw from a distance. I have always wondered if we can actually pull buyers from the cities with any consistency. After the mess of 2008 we are about the only franchised dealer in the northern 1/4 of the state of any size. Since really beginning managing our dealership as a velocity dealership we have started to pull from Columbia, Jefferson City and a few times from KC and STL.

    I agree that we have at least 10-20 more deals out there per month….I'm actually banking on 30+ I just have to get there. Our biggest challenge that we are facing today is growing the inventory to draw those customers and to make those “incremental” sales. Our turn has increased so quickly that I have had trouble keeping vehicles on the lot at the same clip much less adding to our inventory numbers. Interesting problem that I would have never guessed I would have had a year or two ago. This is where my questions to Dale surfaced.

    Joe, I like a lot of the things I see you doing at your dealership via digitally speaking. Am I to assume correctly that you will be attending Digital Dealer next month?

    Thanks again for the insight!

    Nick

  • Nick,

    I don’t think that I could put it better than Joe has regarding the nuance technique in sourcing the “sleepers”. I’m inspired by the depth of knowledge that guys like Joe and others are developing around the country. I’m coming to understand that this technique of sourcing cars is an unfair advantage. When you know something about the market that your competitors don’t, and you’re able to act on it, that’s true advantage. It’s like getting the answers to the test before you walk in for the exam.

    Dale

  • Nick,

    I don't think that I could put it better than Joe has regarding the nuance technique in sourcing the “sleepers”. I'm inspired by the depth of knowledge that guys like Joe and others are developing around the country. I’m coming to understand that this technique of sourcing cars is an unfair advantage. When you know something about the market that your competitors don't, and you're able to act on it, that's true advantage. It's like getting the answers to the test before you walk in for the exam.

    Dale

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