A dealer questions the validity of the velocity approach for sub-prime operations

Dale,

We have been using the vAuto system in our dealership group for a little over a year. After some time to get everyone on board, we are starting to see some real success with it and the Velocity philosophy. Our Ford store has gone from the #4 used vehicle dealership in our market to #1 and our Nissan and Dodge stores are moving up the charts as well.

My question for you is this – we have an off-site used car lot that specializes in cheap cars (under $10k) and bad credit. We do some buy here pay here and the vehicles we have for sale are higher mileage units. The majority of the vehicles have around 100k miles and we own them for $4k – $5k. We have not applied the velocity principles to this store, reasoning that that market is “different” and is more of a credit market than a vehicle market. By that I mean, we are often selling the fact that we can get you financed for a car as opposed to selling a particular car. However, our sales at this store are abysmal. I’m thinking we need to apply the same concepts there as we do at our new car stores and see what happens. Before I jump in, though, I wanted to ask you your thoughts. Is there anything you would do differently at that store vs. our new car stores? Is there any different marketing opportunities online (i.e. websites other than autotrader.com, craigslist, cars.com) that might work? Any advice from stores with similar profiles that are having success? How would you price the cars as they age? Any thoughts would be appreciated!

Also, I want to let you know…My vAuto account manager, Diego Vargas, and I have been doing a “GoToMeeting” conference call once a week for the past several months. I look forward to the call each week as it is the most productive 45 minutes I spend. He has been very helpful in getting us to where we are and I’m sure will be very helpful in the continuing journey to where we want to be. Thanks for hiring him and for making him available to us!

Eric,

I believe that the secondary/sub-prime used car business is extremely important so I’m glad that you have a strong commitment to it. Unfortunately however, the principles for successful operations of a sub-prime lot are very different from that of a traditional used car operation. Everything that you do from which cars to stock, how they are priced, how they are advertised, how customers are handled and financed is completely different. Most dealerships get themselves in trouble by trying to operate these two very different businesses off of one lot, with one inventory, one pricing strategy, one advertising strategy, and one sales force. They typically do not do an optimal job with either business when operated in this manner. To this extent, I encourage dealerships to separate these two very different operations as much as possible. Even if you can’t justify two different locations, perhaps you could have separate inventory, with separate pricing, advertised on separate web sites and even a secondary specialist on staff to handle the leads.

I think you’re beginning to get the idea that they are two completely different businesses and the only thing in common is that there is an automobile involved. I therefore would advise you to pursue different strategies with respect to these two operations. I don’t think that the velocity principles apply very well to secondary sub-prime operations.

Congratulations on your velocity successes, and thank you for the positive feedback on Diego, we’re very proud of his contributions to the vAuto team. Please stay in touch.

Respectfully, Dale

Dale,

I do have a follow up to my original question.

We do have our secondary operation off-site with a separate team, etc. The dilemma I have is this…we’ve started to post our inventory online and are getting traffic off of traditional websites (autotrader, cars.com, etc.). In fact we are seeing more of that traffic than secondary traffic. If we were just offering low priced, higher mileage used cars online…do you think velocity would work?

Eric,

Yes, definitely. The fact that you are getting good action off of these older model low-priced cars is an indication of their desirability.

The only challenge, however is whether you can continue to get the same level of activity while pricing these vehicles as they should be priced to accommodate the bank fees associated with secondary transactions. I suppose that if the vehicles have high enough demand and scarce enough supply, you might be able to pull this off. Of course, the question that everyone would have is where do you find such vehicles.

If you have a source, then you may find that this location could be operated more profitably as a traditional bagel lot. Please keep me abreast of your results.

Thanks, Dale