Today’s dealers face an increasingly challenging process when it comes to purchasing used vehicles. Every vehicle that you find at auction or otherwise needs to be carefully considered and weighed, not just for your perceived profit margin, but also against your customer base, your current inventory, and its ROI.
It can be very difficult for dealers to earn the gross profits they saw in years past. The times of being able to confidently make a purchase without any extra thought are quite frankly, gone. So what can a dealer do?
There are three important factors to consider to acquire profitable inventory to help hedge against this risk.
#1: Know Your Needs First
Leave your gut at home. Make decisions at auction based on what you know your dealership needs. The most profitable dealerships know precisely what they want to buy before they spend times searching online or in the lanes. Specifically, you should have an idea about condition, equipment, mileage, and even color. And, of course, you need to know profit parameters for any vehicle based on your market.
#2: Know the Estimated Costs Before You Acquire
Again, gone are the days of just buying, or buying with your gut. Now, it all comes down to data and analysis. The most successful dealerships know if they can buy the car because they know what to expect in terms of profit. They use different tools to help factor in aspects such as reconditioning costs, the price of acquisition, and the cost of transportation. They also know whether or not they will buy a specific vehicle in cash or on their floor plan.
Again, this comes from having access to key tools. It takes using technology to gather information and learn point-by-point what you need in order to see the profits later.
#3: Ensure Your Dealership Manages Aged Inventory Well
Some dealers ignore aged inventory. They buy without knowing or having a process in place for managing the current aged inventory on their lot. Successful dealerships know that a vehicle eventually depreciates. The vehicles that haven’t sold quickly will either need to receive more attention in terms of online merchandising and reconditioning, or be retailed at an auto auction or sold through other channels.
Aging vehicles are a sore spot for many dealerships. Aging vehicles means that somewhere along the line, you missed the mark in making that purchase.
Focus your efforts on acquiring vehicles that will turn and profit quickly. Get rid of the aged inventory that puts a strain on dealership cash flow, and spend extra time – not money – on making the best auto auction purchases for your dealership.