Used Car Sales Stalled Out? 3 Most Common Problems
Updated January 6, 2019
The auto industry is more competitive than ever, especially in used car sales. You are either excelling or falling behind– there is no status quo.
Customers are highly educated and can afford to be picky. Plus, tightening margins put a pressure on your sales team to turn more vehicles.
Many dealers are struggling to maintain and grow their used car sales. Even if you’re content with your sales today, there is always room for improvement. In this article, we’re going to look at the three main causes of stalling used car sales and how to address them.
Why Used Car Sales Stall
The Internet allows anyone to find information about anything. This means that customers don’t rely on salespeople for basic information like pricing and inventory. They can view their entire market with just a few clicks of the mouse. When they drive onto your dealership, they know what car they are looking for and how much they can bargain for it.
To stay competitive in the information age, dealers need to stop thinking like dealers altogether. It’s time for dealers to think like customers. This means making decisions based on market demand, not “instinct” or what the pricing books tell you to do.
The old way of thinking like a dealer causes three main problems:
- Setting uncompetitive prices
- Inaccurate used car appraisals
- Stocking the wrong vehicles
Let’s look at each of these problems more closely.
Setting uncompetitive prices
Price transparency in used car sales is both a blessing and a curse. Regardless of your stance, it creates a better experience for the customer and it’s not going away. By embracing price transparency and adjusting your pricing strategy to match, you will earn more deals and more loyalty from the community.
Relying on pricing books is not enough to remain competitive today. To have the best price consistently, you have to keep a close eye on the local car market. You need to be all over your competitors and their inventory– the vehicles they stock, the prices they set, and how fast they’re moving.
The lowest price is not always the determining factor in a sale. More important is providing the best value for the price. Keeping an eye on local market pricing will help you do this.
For example, say Jennifer comes to buy a used Honda Civic. She tells you that ABC Used Cars down the road sells the same model and year for $250 cheaper. Plus, their vehicle is in the exact color she wants.
Without knowing ABC’s inventory, you might feel pressure to drop your price to get the deal. But since you’ve done your research, you know that your Civic has 10,000 fewer miles and does not have a ripped seat cushion. You can win Jennifer as a customer by offering a better value, not just by offering the lowest price.
Inaccurate Car Appraisals
Customer trade-ins are a major source of business for independent dealerships. A trade-in represents two chances to make a deal: one when you buy their old vehicle and one when you offer them a new (or used) car. Without accurately appraising their current vehicle, you can easily lose out on both deals.
Say Kevin wants to trade in his RAM pickup truck. He has done his research and asks $12,000, but you appraise his truck at $10,000 because KBB said its retail value was only $13,000.
Kevin is not impressed and goes to ABC Used Cars. They use live market data to determine a $15,000 retail value and factor in $1,000 for reconditioning. They appraise Kevin’s RAM at $11,500. Kevin and ABC Used Cars shake hands and you out lose two deals.
What happened? Because you didn’t use local market data, you low-balled Kevin and forced him to look elsewhere.
Just like football is called “A game of inches”, the auto industry has become “a game of percentage points”. The margin of error has shrunk. You need to be spot-on with your appraisals or risk losing out to the dealer next door.
Stocking the wrong vehicles
No matter how accurate your pricing and appraisal, it will be hard to sell vehicles without the right mix of inventory. Stocking the right vehicles is more than just filling your lot with the most popular models (If that were the case, everyone would stock up on F150s). You also need to look at supply and demand in your local market.
There are several metrics to consider when choosing your inventory:
- Average Turn Rate: How quickly does a vehicle turn in your market? The ideal turn rate is around 30 days.
- Market Volume: How many identical vehicles have sold in the past week, month, or quarter?
- Market Supply: How many identical vehicles are currently available in your local market?
- Market Days Supply: Market Day Supply is an aggregate metric that tells you how many days of inventory are available in your market, based on daily sales. For example, if there are 100 identical vehicles in your market, and they sell at an average of 2 vehicles per day, then the market day supply is 50 days.
By looking at the Market Day Supply (MDS), you can quickly analyze its potential of a vehicle. When the MDS is too high (over 100 days), it tells you the market for that vehicle is too saturated or moving too slowly. If the MDS is too low (under 50), it’s typically an indicator of low supply for that vehicle. While low supply is not bad in the short term, you certainly don’t want to base your inventory around a vehicle that is discontinued.
When choosing which vehicles to stock, a good strategy is to choose vehicles with a Market Day Supply between 50-100. If priced competitively, you can be confident the vehicle will move quickly.
Using Real-Time Market Data to Drive Sales
The auto industry has changed. Today customers can search their entire market for the perfect car at the perfect price without ever stepping foot on your lot. To keep used car sales moving, you need to have the right data.
The 3 most common issues with used car sales are uncompetitive pricing, inaccurate appraisals, and stocking the wrong vehicles. With real-time market data, these problems disappear.
Real-time market data tells you which cars are currently being sold and at what price. You get the most up-to-date information and competitor analytics to help you accurately appraise trade-ins. You know which cars to stock and approximately how long it will take to move them. This information helps you plan ahead for even bigger profits down the road.