A Deeper Dive Into Dealer Trade Efficiency

As franchised dealers work harder to maximize new vehicle sales in the current market, some are taking a deeper look at dealer trades.

The dealers are recognizing that, in today’s environment of rising floorplan interest expense and softer retail sales of new vehicles, they can’t afford to take in vehicles from dealer trades that that aren’t right for their inventory or market or let go of vehicles they really need.

“I was tired of having duplicate inventory when I wanted to grow the dealership,” says the general manager of a Midwest Honda store that retails about 100 new vehicles a month. “I was getting killed on dealer trades. I heard people saying, ‘Just give me another Civic back, or just give me another Accord back,’ and I’m saying, ‘why do we need five black Accord LS’ in my inventory?’ It doesn’t make any sense whatsoever.”

The operations director for a West Coast dealer group adds: “The amount of inbound dealer locates that we are getting has flip-flopped. We were having to call to get cars every time we had a customer who wanted a car we didn’t have, which happened a lot. Now, the local and not-so-local competition is calling us because we have what they didn’t know to order.”

I’ve kept notes from my dealer trade conversations, and I thought it might be useful to share some of the best practices these and other dealers are following to make dealer trades a more productive part of their new vehicle business:

Determine how often dealer trades occur. A couple years ago, vAuto did a study of new vehicle dealers that asked about dealer trades. Dealers told us that dealer trades were not typically regarded as an important part of their new vehicle stocking strategy. The responses also suggested that dealers weren’t keenly aware of how often dealer trades occurred. In some instances, I’ve since learned, dealer trades can account for as much as 50 percent of a store’s monthly sales—that is, someone’s calling another dealer to make a deal because you don’t have the vehicle in stock.

Track your dealer trade requests. Today, dealers are keeping better track of their dealer trade requests, and accounting for them in their next factory order—a process akin to the “lost sales” reports some dealers employ in their parts departments. The report helps determine if there’s a sufficient number of lost sales to stock the part and potentially sell a future customer. Inevitably, dealers say, their efforts to track dealer trade requests helps break a cycle where they aren’t consistently ordering vehicles their customers want, and the resulting dealer trades hurt their inventories more than they help.

Tie your inventory objectives to dealer trade decisions. When the Midwest Honda dealer grants a dealer trade request, he’ll look first to his own inventory to find holes that need to be filled, and then determine the exact car—based on model, trim, color and Market Days Supply—that he’ll request from the other dealer.

“If I get a call from someone who wants a Honda Civic, I don’t just take a Civic back automatically,” the Midwest Honda dealer says. “I’m looking first to what I need in my inventory and what’s in transit. The cool part is, when someone needs a car from me, I can almost always get back whatever I need, and I’m no longer taking in duplicate inventory I don’t need.”

On the flip side, if he asked another dealer for a trade, he’ll look to give back an older-age unit, or a vehicle with a less-desirable color or higher Market Days Supply. His goal is to use the exchange to improve his inventory’s appeal with potential customers, and only help competitors if he must.

As I’ve talked to dealers about how they handle dealer trades, I’m struck by how much I missed the boat when I was a Cadillac dealer in the 1990s.

I remember dealer trades happened all the time, and I gave them almost zero attention.

To be sure, I didn’t have the technology or tools that are available today that might have helped me easily and quickly understand how a dealer trade decision on one day might help or hurt me in the days and weeks that followed.

But, looking back, I also recognize that my essentially out-of-mind regard for dealer trades probably wasn’t best for my business.

The upshot: If dealers take a deeper dive into their own dealer trade practices, chances seem pretty good that you’ll find an opportunity for improvement.