What is a good look-to-book percentage in today’s market, and is there more that you need to know?

Andrew Wright of Lehigh Valley Acura Honda has a good handle on his trade appraisal process…

Do you (vAuto) have average look to book ratios for dealerships with at leas 150-200 appraisals per month? In an environment where good used cars are tough to come by, I want to make sure I’m not missing any at the door.

Now obviously, guys could step up and put stupid money in trades to make deals, but their used car inventory would be all out of whack so there would obviously have to be a correlation between look to book ratio and acquisition cost.

Let me know your thoughts.   Andy

Andy,

First, as you have properly noted, the dealership’s look-to-book has no context without balancing it against the type of money that you’re putting in the trades. I could guarantee you 100% look-to-book by simply appraising every vehicle for $1 meellion dollars, but I don’t think you’d appreciate that very much. So what are the right metrics for look-to-book and cost to market (how heavy you’re hitting the vehicles)? Well, it depends somewhat on your dealership’s appraisal policy. Some dealerships will only appraise a vehicle if the customer has driven a car and made a commitment to buy today. Other dealerships will appraise anyone’s vehicle upon request. As you might imagine, variances in such policies will affect the results.

Also, I’ve found that hot brands, like Honda, Toyota and others seem to also carry higher average look-to-book. Interestingly, however, the brand correlation does not necessarily hold true for the type of money that’s being put in the trades. Having said all of this, I believe that 33% look-to-book is a solid average. Assuming that you’re entering all the appraisals in the system, 45% – 50%is a great result providing you’re not over valuing the trades.

I believe that in today’s environment your cost to market before reconditioning should be in the high 70’s to low 80% range on average. If you’re appraising much above the 85% cost to market range before reconditioning, you’re definitely buying the business. If you’re much below the high 70’s on average, you’re probably too conservative and passing business. Note that these ranges will fluctuate over time depending on market supply and demand. As I’m sure you also know, it is critically important to look at your look-to-book balanced against your cost to market on an appraiser by appraiser basis as well as sales person by sales person. Every dealership will find a large variance in the skill and proficiency of appraisers and sales persons to achieve a solid look-to-book with a reasonable cost to market. The thoughtfulness of your question suggests that you are paying close attention, and for that you are to be congratulated.

Thanks – Dale