Two necessary conditions for used vehicle success

November 11, 2009

Today’s used car business is varied and complex.  What you have to do in order to be successful spans a wide range of skills from traditional lot management to virtual marketing.  It is unreasonable to expect success to occur by simply working harder and faster.  Rather, specific conditions must exist for success.  So what are these conditions? 


The first set of conditions are called “paint metrics”.  Paint metrics refer to the more traditional physical side of used car management.  Today’s paint metrics, however, are new ones that most dealerships do not understand or use.


The first paint metric is the market day’s supply of the vehicle and to know it before you determine whether you want to own it, how much to pay and how to price it.  The relationship of the vehicle’s supply and demand in your live market is a powerful predictor of how fast it will sell, and how much gross it will generate.  Dealers understand how this supply and demand dynamic works on their new car lot, but very few appreciate its effect in managing the used car operation.


Second, vehicles need to be priced properly.  This does not mean all of them be priced high, or low, but rather to know which ones can and will bring premium prices, and which ones will not.   This is accomplished by assessing the vehicle’s physical qualities and knowing the odds of fast turn and high gross determined by the time tested principle of supply and demand.  For example, it is virtually impossible to achieve fast turn and high gross on a vehicle that has huge supply and little demand. 


The third critical paint metric is managing your cost of inventory.  It’s always been true and will continue to be the case that you can not make any money with used cars unless you own them right.  This means that you must have a consistent and objective tool for cost management. The cost to market metric, which compares your unit cost with the vehicle’s average retail selling price is the best metric for determining how right you own the vehicle. 


In order to expect to have success in today’s efficient market, you must have vehicles that have low market day’s supply, priced right and owned properly.  The only way to achieve these conditions is to manage with the new paint metrics of market day’s supply, price to market and cost to market.


The second condition set that must exist in order to achieve success in used car operations is a high degree of pixel proficiency in virtual marketing.    The category of virtual marketing that dealerships are most familiar with is on-line classified sites, such as AutoTrader and  Although a great deal of money is spent on these sites, few dealers really understand the dynamics of what makes them perform. 


The first key pixel performance measurement is the number of search result pages (SRPs).  SRPs are the virtual equivalent of drive-by traffic.  


The second key metric is the number of vehicle detailed page views (VDPs).  This is the virtual equivalent of how many people came in off the street and said “I want to take a closer look at that one”.  Again, most dealerships don’t have any idea of how many times this key behavior occurs each day, week or month on the third-party sites that they pay to advertise on.   It has been proven that there is a mathematical correlation between the number of times that an on-line shopper views the detail page of your vehicle and the number of shoppers that physically show up at your dealership. 


Third, the conversion ratio of SRPs into VDPs is an important indicator of your dealership’s proficiency in on-line marketing.  Without an ability to control these key basic virtual marketing conditions, success may be elusive for any dealer.

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