Whether we’re talking about used car valuation for customer trades, or wholesale inventory, the auto industry has long built its foundation on the law of averages. We base some very important decisions on these averages.
However, Wall Street professionals will tell you that relying solely on averages can result in inaccurate conclusions and bad decisions.
We look at market reports and immediately begin working through an average in our heads. We see auction reports and book value ranges and try to determine where, on average, a specific car or truck lands in that range.
Right now, our industry is in the midst of a book value revolution. As a result, we believe some long overdue changes will be coming.
Below, we’ve outlined some common mistakes that dealers are prone to when it comes to using averages for used car values. We’ve also made some recommendations about what your dealership can do to avoid losing money.
As you’ll see, the trade-in experience you provide to your customers is at the center of the issue.
Mistake #1 - Average Used Car Values Ignore Market Factors
There are nuances in particular regional markets, and factors that impact demand in specific territories, that book value averages largely ignore. Averages also fail to consider what the market will bear. In other words, what is someone really willing to pay for a particular vehicle?
In contrast, community-based software like The Appraisal Lane allows dealers to connect with live experts in markets outside their own to reach a larger group of interested buyers.
Connecting with valuation experts who understand all types of vehicles, and specific market conditions, helps dealers avoid the mistakes that come from relying on book value averages generated by algorithms. Human intelligence is the differentiating factor.
Mistake #2 - Averages Ignore the Unique Nature of Individual Cars
Averages fail to evaluate each vehicle on its own merit. Book value ranges are just that – ranges. Many factors determine where a car sits in that range, whether it sits at the high end, the low end, or somewhere in between.
Something as simple as a color combination or a slight variance in mechanical condition can have a significant impact on value.
In contrast, a collaborative approach with live appraisal experts enables you to truly evaluate a car or truck based on its unique characteristics. Every used car is as unique as the person driving it. Human judgement takes these factors into consideration, while averages fall short.
Mistake #3 - Averages Present Greater Risk with Non-Core Inventory
When it comes to cars outside your stocking plan, averages present an even greater risk. Most dealers are very comfortable with core inventory appraisals. But what about off-brand units and oddballs? The risks of getting buried in a trade grow exponentially with unfamiliar vehicles.
Community-based tools allow you to harness the power of the industry to crowdsource used car values and avoid making bad decisions on trades you aren’t familiar with. Every car is core inventory to someone.
Protect Your Cash Flow from Preventable Mistakes
If you’re relying on book value averages early in your inventory cycle, you’re probably using these same metrics to manage aged units and source new inventory.
That means every stage of your inventory lifecycle is prone subject to the mistakes that come along with using averages for used car values.
Consider adopting a new combination of technology and collaboration instead. These tools can help protect your cash flow when you value live trades, source new units, and manage your existing inventory.