3 Reasons Dealers Miss Wholesale Profit Opportunities
In a recent Automotive News webinar, I made the point that while dealers achieved substantial wholesale profits last year, many left money on the table.
The observation’s spurred several conversations with dealers about the reasons I believe that amidst record-setting wholesale profits, dealers could have earned even more. Here’s a quick rundown of my reasoning, which I discuss in greater depth in my latest book, “Whole Truth: A Fresh Money-Making Approach to Wholesale, the Most Misunderstood Side of Your Business”:
Reason 1: You won’t make money if you just want wholesale vehicles to “go away.” This is exactly how I regarded wholesale vehicles when I was a dealer. We didn’t plan to retail the vehicles, and I wanted them off the books as quickly as possible. Truth be told, while I was happy when my used vehicle manager informed me that the latest batch of cars we sold to a wholesaler came out cash-positive, I wasn’t terribly upset when the opposite occurred, and we lost money. The bottom line: If you’re looking to off-load the vehicles as quickly as possible, and you don’t really care if their sales to a wholesaler or at auction lose or make a little money, you’re probably not going to realize optimal returns.
Reason 2: The factors that determine the specific vehicles a dealership will wholesale are often less than objective. As I note in “Whole Truth,” used vehicle managers often have latitude to determine the vehicles they’ll take to wholesale. To be sure, they often make good decisions—they wholesale what might be regarded as “no-brainer” units—vehicles that, due to condition, make, mileage, past experience or some other legitimate reason, the dealership should wholesale rather than attempt to retail the vehicle. But most dealers would agree that they aren’t always aware of the precise reasons a specific vehicle, or a package of cars, gets sold to a wholesaler. They acknowledge that, unless they pay closer attention to the exact vehicles that get wholesaled and the related reasons, there’s a good chance they sold off vehicles that might have made more sense to retail, especially in the profit-positive retail market dealers have enjoyed the past two years.
Reason 3: Dealers rarely follow all the best practices that top-performing wholesalers use to yield consistent, profit-positive outcomes for the vehicles they sell in the wholesale market. “Whole Truth” details the top wholesalers’ best practices—a critical, curated quantity of vehicles, a critical quantity of potential buyers, zero tolerance for “no-sales,” and an unwavering desire to do the right thing when buyers aren’t happy with your car. Dealers understand why the best practices make sense, and most acknowledge that while they may attempt to follow one or two of what I’ve come to call the critical elements of the wholesale playbook, they rarely follow all four all the time. In some ways, dealers can’t be faulted for falling short on the playbook best practices. Many simply don’t have the volume of wholesale vehicles, or the people and resources to properly steward their wholesale vehicle sales, to reach the levels of consistent profitability larger wholesalers achieve on a regular basis.
In the webinar, I made the point that as the wholesale market returns to more normal rates of depreciation, dealers will begin to see a return to the more normal levels of short gains and losses they have historically seen on the wholesale line of their financial statements. Similarly, as I noted in a post last month, some dealers may also see a return to the creative accounting that can mask the real outcomes of wholesale vehicle sales.
One of the reasons I undertook “Whole Truth” was to help dealers gain a better understanding of the double-barrel profit potential—from retail and wholesale sales—that resides in every dealer’s used vehicle department. The book also offers a way forward to help dealers optimize wholesale profitability, using a new solution from Cox Automotive, Upside, that effectively executes the best practices of the wholesale playbook on behalf of the dealers who participate.
We debuted the book and the solution last month at NADA in Las Vegas. Dealers were intrigued and positive about the prospects of more consistent wholesale profitability. In turn, I’m excited about the prospect of helping them achieve it.
Note for readers: You can check out the Automotive News webinar here, where you’ll need to input your contact info to access it. Due to printing delays, “Whole Truth” is not yet available on Amazon. We have a limited supply of copies available to those who request one here.