When the Right Money Goes Wrong in Used Vehicles

Let’s imagine your appraiser valued a trade-in at $15,500—smack dab in the middle of a range your inventory management solution recommended as the “right money” for the vehicle.

Your inventory management solution arrived at the right money recommendation by assessing the vehicle’s investment return potential and the dealer’s strategic gross/volume objectives, the vehicle’s competitive appeal and price sensitivity in the retail market, the appraiser’s reconditioning estimates, the vehicle’s cost and any other costs (i.e., a pack) the dealer typically adds to vehicles they intend to retail.

At this point, there should be no debate or discussion that the appraiser did a good job. The $15,500 appraisal offer landed the vehicle. The dealer now owns it the “right money” as defined by their strategic objectives and the system’s recommendations. The customer’s happy with the trade-in value and transaction.

But as I noted in an earlier post, and write about in my new book, Invested: The New Science, Strategy and System of Used Vehicle Investment Management*, there are often times that the right money, in this case $15,500, can go wrong. Let’s examine a few:

A manager bumps the trade-in value to make the customer’s purchase of another vehicle work. Maybe the customer refused to buy the other vehicle unless the manager discounted the purchase price by an additional $500. The manager says “yes” and decides to bump the customer’s appraised trade-in value by the same amount. Suddenly, the right money of $15,500 becomes $16,000. It’s an example of the right money going wrong for what might be a good reason.

A manager decides to override the retail price range recommendation the inventory management system calculated to achieve the dealer’s desired volume or gross objective. In this hypothetical, the system advised a retail price recommendation around $18,000, which would translate to a $2,500 front-end gross profit potential based on the appraiser’s $15,500 valuation. But the manager has a different idea, maybe because of an appraisal bump or maybe because they are feeling pressure to make gross. Whatever the case, the manager decides to price the vehicle at $19,000, a decision that means the right money has gone wrong again.

A week after the vehicle’s been in inventory, the reconditioning RO clears. The appraiser’s original estimate wasn’t as accurate as everyone thought. The car had a mechanical issue that cost an additional $1,000 to fix. Now, instead of owning the vehicle for $15,500, the dealership owns the vehicle for $16,500, another instance where the right money goes wrong.

Collectively, these scenarios represent a breakdown of the retail exit strategy the dealership determined for the vehicle at the time of acquisition/appraisal. In my view, the retail exit strategy you determine at the time of appraisal must extend through its pricing and its eventual retail sale, even if its cost basis has changed for less-than-ideal reasons.

Unfortunately, dealers and used vehicle managers often aren’t aware that when you alter the retail exit strategy defined during the appraisal, you’re overlooking the fact that it’s the same car in the same market. The only thing that has changed is that the right money for a vehicle has gone wrong. If you pretend otherwise as you price and sell the vehicle, you’re inviting risk that the wrong money will go really wrong by the time you move the car,

* Invested will be available at NADA 2025 at vAuto’s booth (#2506). Stop by to get your copy.