By the Solera Insights team
The current shortage of inventory has been a major challenge for the entire automotive industry: sales reps who depend on commission-based pay, auto workers facing a wave of temporary layoffs, suppliers grappling with the temporary shutdowns imposed by the automakers, and, of course, their customers. Everyone is feeling the impact of the new vehicle inventory shortages made even worse by the global semiconductor shortage in early 2021.
However, one group has been able to turn the inventory crunch to their advantage: dealers. With hardly anything new to sell, dealers are raking in more gross profit than ever.
Of course, the only hitch for dealers is that you need inventory to sell.
With experts predicting that the shortages will continue through 2022, there is no better time to stay in the lead and get aggressive with sourcing efforts. Dealers are competing with rental car companies and large, national used-car dealerships for pre-owned inventory. If you’re relying on the same old sourcing techniques, you’ll be running out of cars sooner rather than later.
Here are a few ideas that could help increase inventories despite the current supply-demand mismatch
Contact Unsold Customers
Make call lists of unsold customers going back three months. Some bought elsewhere, but some did not buy at all. Vehicles belonging to those non-buyers may be worth thousands more than they were two months ago. Reach out to them. It’s worth a try.
Buy Lease Returns
Buy any and every possible lease return you can: regardless of brand or customer. Don’t pass on a vehicle just because it has damage. Age means nothing. Advertise and market the heck out of this.
Let customers know they might profit from any pre-set residual value from lease inception. For example, if that purchase option was $10,000 and a dealer can pay the customer $14,000 for the lease return, that’s $4,000 cash in the customer’s pocket.
If you can’t sell the vehicles, wholesale them. The usual rule of thumb with wholesale is that dealers may break even, lose $100, or make $100. Now dealers are making $3,000 profit on vehicles they would have called junk two years ago. Dealers are making $70K or $80K a month in wholesale profit. It’s a whole new profit center.
Establish a Service Drive Appraisal Program
There’s a right way and wrong way to source pre-owned vehicles from service customers. First, don’t put existing salespeople in the service department and expect them to be successful. Hire someone to work exclusively in the service department and pay them a base salary.
Don’t approach customers in the service drive. You don’t want to scare them away, so place signage in your service drive that promotes your free market valuation. When customers raise their hands, only then can the salesperson engage. For customers who don’t raise their hands, leave an appraisal on their front seat.
Pay More, Sell for More
Some dealers don’t want to spend ridiculous amounts of money to buy pre-owned inventory. Yes, vehicles are way overvalued. But there’s no inventory.
Pay more to get cars that you would have passed on two years ago but then sell for more. If you don’t pay more, you’ll be sitting with no inventory – so get in the game.
Cast your marketing net wider. Customers are willing to drive a long way to get the vehicle they want. Dealers are holding their prices firm, and customers are willing to pay. Many stores are averaging $3,000 to $6,000 in front-end profit per vehicle. Don’t bother looking at market data to see what cars are selling for because it means nothing.
Just keep raising prices. Your competitors are, and they’ve been very successful. Many dealers are having the best months they’ve ever had in their history. Cars are routinely priced at 135 percent to 145 percent to market, and customers are paying.
This craziness will probably continue for at least another year, so it’s time to think outside the box when it comes to sourcing pre-owned inventory. Hold free car clinics, leave cards on vehicles in grocery store parking lots, whatever it takes. Gather your team and brainstorm. Inventory won’t drive itself onto your lot.
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