To Buy or Not to Buy in Today’s Inflated Used Car Market

I totally agree. We haven’t had any problems buying cars as long as you keep looking for and finding the “right” inventory. The hardest part is finding the short supply, high turn vehicles on the heat sheet. But it has been fun looking for the “needle.” My only question that I have pondered since day one is this “would a customer who finds the same eqipped car at a similar price rather buy it from a franchise store or an independent like ourselves. And if they would rather buy from the franchise store than how can an independent overcome this mindset?

Ted,

Thanks for your comment. I know a lot of independent used car lots that absolutely rock. Moreover, some of these dealerships operate at the level of a Lexus or Mercedes Benz store in terms of their cleanliness, friendly and efficient service and quality of reconditioning. I would urge you to check out Automotive Avenues in Lakewood, Colorado, or Price Point Motors in Traverse City, Michigan.

When used car operations are conducted at this level, I might argue that they may actually have an advantage to the extent that they are not burdened by the possible brand baggage of their franchisor or brand-loyal psyche baggage of their managers.

For example, does CarMax have a problem stocking or selling a wide variety of vehicles irrespective of their brand? I don’t think so. Does their business process support a reputation of quality, consumer friendliness and security, I think so. Hopefully you get my point. There’s no inherent disadvantage about an independent used car operation. What it really comes down to is how you conduct business and how well you convey your brand to the marketplace. If done right there should be no problem.

Thanks Dale, you reinforced the same thoughts that I had. It’s just nice to hear from someone else that what you (we) are doing is in fact the right thing(s). My only complaint so far about vAuto is the difficulty of finding any of the real “hot” vehicles in any kind of quantity. Everything else is great so far. Oh, one last thing, does vAuto distinguish between a BHPH sale comared to a retail sale? For example, I notice a lot of older higher mileage BHPH type cars that are on the heat sheets. Would one that is not in the BHPH business be making a mistake if they bought a 90k 04 Cavalier to strictly sell for cash or traditional financing? I just have never seen much of a “cash buyer” demand for that sort of car in my area, but then again I’ve never really tried to retail one either. And my other thought would be that it would be nearly impossible to find decent 02-05 vehicles that had much life or didn’t need to built from the ground up. I anxiously await your thoughts. Thanks, Ted

Ted,

Thanks. $0 to $10k cars are always going to be hard to find. When you come upon one that’s in good condition, you’ll almost never go wrong. These are not really ones that you can expect to find in the wholesale marketplace without a great deal of effort and frustration. If these vehicles continue to come up on your heat sheet, you shouldn’t be surprised as they’re always going to be hot merchandise. You can, however, narrow the price range of your heat sheet so as not to be overwhelmed with a lot of hot vehicles that are difficult to buy.

Next, with respect to your comment that it’s difficult to buy hot used cars in general, this is truer for some vehicles than others. What I look for are those vehicles on the heat sheet with a low day’s supply that are surprises. In other words, vehicles like an ’08 Kia Rondo in Houston, is red hot right now. Unlike a ’08 Toyota Rav 4 I don’t imagine that every used car manager in the Houston market has the ’08 Kia Rondo on the top of their list. Yet, for some reason it’s got even higher demand and lower supply than the Rav 4 or even the Highlander. Go figure!

When you have knowledge about supply and demand in the market that is not available or understood by everyone else and you’re able to act on it, that’s how you win. The good news is that there are always such pockets of opportunities, and now you can see them. Yes, it is true that it takes time and effort to find the information and to act on it, but that’s why not everyone in the market will do it.

Finally, vAuto does not presently differentiate between a BHPH and conventional sales. We could however, should we? It would be helpful to understand the business case for doing so.

Thanks, Dale

Dale, Thank you once again for your quick reply. I hope that you don’t feel that I am trying to “buck” the system. Rather, I’m trying to get a better grasp of exactly what and how it works.

As far as determining whether a vehicle was a “pure retail” sale or a BHPH transaction I think in some ways the information could be very useful. To me, a BHPH sale is skewed in that it doesn’t represent for my purposes a “true sale.” In other words would it be wise for me to stock the same car and then price it competitively with the BHPH dealer down the street knowing that I had limited if any way to finance it?

I just really have a hard time thinking that I would get much “pure retail/cash buyer” response from a 150k 99 Town and Country van which happens to be in the top ten in my market.

The beauty of the system and in life is that I can make any choice I want. I can stock as many or as few of the vehicles as I see fit. But I’m the type of guy that wants every sale. I just need to be reassured that the data provided is as accurate as possible. And I think 99% of it is!

Thanks Again Dale,
Regards,
Ted

I have a question concerning inventory levels and customer perception. I am in total agreement with the turn concept and stocking to maybe a little over turn potential. My question concerns the customer perception of your dealer with such a low inventory level. One of the first questions we had from customers on the lot when our inventory was low was whether we were still in business. I know the standard reply “we are selling them so fast” et al but there is still the perception in todays climate whether you are going to be there next month.

Bill,

I understand your concern. I would however like to respectfully respond with a couple of thoughts. First, I know that you’re Jeep dealership was egregiously taken from you and understandably you are very sensitive about the whole perception issue. Maybe hypersensitive, and for good justification? In other words, I really don’t think that perception or the concern for perception should necessarily drive sound stocking judgments.

Second, the way we built our dealerships in the past with large amounts of real estate will increasingly create the perception of something gone wrong in today’s new, more lean, high turn environment. Once again, should we allow our over investment in real estate to dictate stocking policies? I don’t think so. I don’t mean to be smug, but maybe it’s time to call into question the architecture rather than stocking policies.

Thanks – Dale

Hello Dale,
One more question as it relates to this discussion. How can a Velocity dealer combat the preception that a customer has concerning whether your vehicle is “certified” or not. For example, the Honda dealer up the street has the same car I’m selling. Mine is priced $2000 less but his is “Honda Certified.” We haven’t been able to figure out an iron-clad way to overcome….”yeah but the car up the street is certified” objection yet. From our short experience as a vAuto dealer it seems the customer would rather pay the extra money for the “certification.” I notice that CarMax, atleast in our neck of the woods doesn’t stock too many Honda’s or Toyotas. Is this because they simply cannot overcome the preception that the customer has concerning “certification”?

Thanks again,
Ted

If your area is like ours, the Accord’s and Camry’s of the world are in the high volume-low margin category. My guess is Carmax has discovered this in your area and therefore chooses to not stock a large quantity of those models. In my experience, you have to be a significant amount cheaper than the CPO product to get the “looks” online. Because there is additional value there…like it or not! This makes those cars a harder car to go out and buy at the auction and turn a respectable profit on. We have all but stopped buying those vehicles because of the lack of profit potential. Anyone else experiencing this challenge?

Ted,

Great question. My experience has shown me that there are a few, and I mean really just a few used certified brands that have a high degree of loyalty in the consumer market place. Toyota, Honda, BMW, Lexus and Mercedes cover most of them. I am therefore reluctant to suggest to a non-franchise dealer that they try and implement a stocking strategy around these vehicles. It is difficult to overcome the strong appeal of these certified brands. I hope this helps.

Dale

I have questions as well on the certified topic Ted spoke of…I agree with the “CPO” marketing strategy, quality, value, less exposure, etc. Isn’t it by design to give the Franchise dealership offering “CPO” an edge? In order to stock those vehicles and be competetive, wouldn’t it make sense to come up with your own certification process to combat the objection? (Your thoughts on that…) Or moreover, to simply drive more virtual traffic to your phone/door with a similar less expensive “certified” program that sends the same message. I’ve heard horror stories on costly aftermarket plans to do so. Do you believe that IF it’s affordable certifying late model high turn vehicles typically sold at the franchise dealer, can we effectively play in that arena? No doubt, it could compliment an independent dealers message/perception to the customer. Finally, what are some of the successes or failures you’ve seen trying to compete in this arena? I’m not ready to give all “CPO” to the Brand dealers and stay out of that pie.

Ben,

Thank you for the thoughtful questions. I believe that factory certification is extremely important and valuable to both consumers and new car dealers for at least two reasons. First, you have to believe that a consumer’s greatest fear in buying a vehicle is uncertainty about the vehicle’s reliability. Certification takes this completely off the table. Second, the ability to market a car as “certified” creates an important differentiation and differentiation is the key to getting leads from an otherwise crowded internet environment.

Having said this, your question is whether an independent dealer can do something that accomplishes the same goals. I think the answer is yes, however the challenge is greater for you as an independent dealer. When a Toyota dealer can place the words “Toyota Certified” on a vehicle, not a whole lot more needs to be said about what it means. Toyota, Honda, Mercedes, GM and others have spent fortunes building the value of their certified brands. This is obviously not the case for a home-spun or third-party independent certification label. So does that mean that there is no value in your own certification brand? I think the answer is that there can be, however, your certification can’t be just a claim but rather must really be something of substance.

In other words, a true factory certified car must meet specific year, mileage, physical and mechanical condition requirements. Further, such vehicles are backed up with genuine warranty coverage. If you’re not prepared to create your own certification program with the same stringent requirements, you’re just looking for the benefit without making the commitment to doing it right. As with all such “quick win” approaches it is doomed to failure. In the end, what makes the factory certified programs so powerful is the fact that they are so real.

Hope this helps

Dale