Used car valuation is more important today than it has ever been before. Pressures on the automotive industry continue to mount as forecasters predict a downturn in new car sales for 2019. While new vehicle sales are expected to fall below 17 million units this year for the first time in five years, used car sales are expected to grow.
How will your dealership optimize used car operations to offset the slump in new car sales? It’s probably time for you to take a closer look at your used car valuation procedures and your trade-in process.
The Current Dealership Used Car Valuation Process
Consider today’s typical trade-in process.
A customer drives up to your dealership with a trade-in. The sales associate consults with the Used Car Manager to determine its value.
The Used Car Manager first looks at local auction reports, then consults the big valuation guides. He or she might call a friend down the street who happens to also be a Used Car Manager, and they might also call a local wholesaler or two to gauge interest.
Now let’s say the Used Car Manager isn’t available. They might be at lunch, at the auction, or on vacation. What now? The sales associate will look for someone else in the dealership who is empowered to help. They might call their own friend who’s an appraiser or a UCM down the street. Finally, they’ll look at the auction reports and valuation guides to confirm what they’re hearing from their network.
In either scenario, the reality is that the dealership is forced to speculate on the used car’s value. Even with access to all of today’s leading resources. It’s actually easy to understand why.
In the last five years alone, more than 11,000 make/model/trim combinations have been manufactured. And for the average dealership, more than 60% of the trades they process each year are non-core, off-brand units.
It’s virtually impossible for dealers to perform used car valuation with any degree of accuracy for every trade they evaluate. This challenge inherently puts them at odds with their customers, while also putting them at risk of missed retail deals and wholesale loss along the way.
Better Business Requires a Better Trade-In Process
With lower new car margins and volume, a competitive and cluttered marketplace, and ever-changing buyer behaviors, today’s dealers need every advantage they can get.
One big potential advantage is the trade-in. Simply put, the trade-in process sets the tone for the replacement vehicle purchase and the overall experience a customer has with your dealership.
Trade-in value determines how much equity a customer has in their car, which ultimately determines their monthly payment amount. Most importantly, the trade-in value often determines whether or not the customer can transact in the first place.
Even though the trade-in is a fundamental part of the new car buying experience – one that represents over 8 million dealer retail opportunities every year – our industry still relies heavily on used car valuation data generated by computer algorithms.
Computer algorithms are based on the law of averages and only analyze a handful of data sets. The problem with the algorithmic approach is that it largely ignores two universal truths: 1) Used cars are as unique as the people who drive them and 2) A used car is only worth what someone is willing to pay for it.
Beyond the standard data sets of year/make/model/trim, mileage, and condition, there are many other factors that impact a car’s value, including VHR information, optional equipment, mechanical condition, rebates and incentives, open recalls, geographical factors, seasonal factors, stop sale issues, regional supply and demand, and many more.
Today’s valuation algorithms analyze big data from a growing list of resources, with more robust forecasting solutions than ever before. But they still ignore specific market demands and they still can’t judge a unique vehicle on its own merit.
As such, they represent greater risk for non-core inventory. They also have a tendency to shoot low, which can potentially cost you retail deals. These are issues that can only currently be addressed by the human element.
The Rapid Auction Used Car Valuation Model
The rapid auction approach is another used car valuation method. This approach involves a dealer reaching out to his network of contacts, providing them with information about a trade, and receiving bids to buy that trade.
Rapid auctions have worked in the past for dealers who want to involve the ever-important human element and are interested in pooling a larger group of resources beyond software and value guides.
The downside risk is that this pool of resources consists of other dealers and wholesalers who aren’t singularly devoted to valuing cars. Nor is there any guarantee of a consistent response (or a response at all), which can leave the dealer in the lurch on live trades.
Additionally, this approach is limited to the size of a dealer’s network. If the pool of bidders is small and there is no competition on a given unit, the resulting price can be mistakenly low.
The Dealer Trade-In Process and the Community Approach
A new used car valuation approach – the community approach – has emerged to address the challenges that algorithms and rapid auctions bring.
From the convenience of their mobile device, dealers can use community-driven software like The Appraisal Lane to upload vehicle information and pictures, connect with live appraisal experts, answer condition questions, and get an accurate offer backed by cash, in minutes.
In the palm of their hand, they can interact and converse in real time with appraisers who are singularly devoted to used car valuation and who understand the unique factors that impact value across all makes, models, and markets, taking into primary consideration specific market demand and regional factors.
With the community approach, dealers can tap into a much larger pool of resources than those in their contact list, with an independent third-party validation and a consistent response, and get a guaranteed offer backed by cash with one-click wholesale disposition. They can also use The Appraisal Lane’s Buyer’s Network to acquire in-demand inventory from any curb.
As with anything new to the marketplace, the community approach requires a shift from an old way of thinking to a new process and a new way of doing business. And while no one can guarantee the best price, this approach has been proven to improve used car operations, mitigate wholesale loss, and improve CSI for forward-thinking dealers.
The Community Approach for Consumers
This same community approach is now available directly to consumers, to help dealers improve customer satisfaction, make more retail deals, and improve their overall business.
Here’s how it works.
Through a web plug-in on a dealer’s website, or via a mobile app for iPhone or Android, consumers use The Appraisal Lane’s retail solution to connect to appraisal experts, answer condition questions, and upload photos of their trade to receive a guaranteed cash offer in 30 minutes or less.
The offer they receive is accompanied by a QR code and redeemable at a local participating dealer, as cash in hand or as a down payment towards their next vehicle purchase.
If the customer has questions along the way, they can speak directly with live appraisers in real time, as well as designated sales staff at the participating dealership.
Consumers get the confidence that they received a fair used car valuation on their terms; a simple, hassle-free experience; and a transparent process they can trust, both online and at the dealership.
Dealers get a fresh stream of engaged customers; quick and easy access to in-demand inventory for their store; and loyal customers who tell their family and friends, and keep coming back.
Four Winning Community Trade-In Process Scenarios
Compared to other used car valuation processes, the community approach offers a variety of winning scenarios for dealers.
For example, if the customer buys a new car and the dealer wants the trade-in for inventory, the dealer gets the gross profit of the new car sale and the future gross profit of the used car sale.
If the customer buys a new car but the dealer doesn’t want the trade-in for inventory, the dealer gets the gross profit of the new car sale and sells the trade to The Appraisal Lane, mitigating any wholesale exposure in the process.
If the customer doesn’t buy a new car but the dealer wants the trade-in for inventory, the dealer gets future gross on the sale of the used car while paying very little in acquisition costs for pre-owned inventory they want and need.
If the customer doesn’t buy a new car and the dealer doesn’t want the trade-in, the dealer sells the used car to The Appraisal Lane and mitigates wholesale exposure. The dealer also provides the customer an unparalleled experience that exceeds expectations. As such, they gain a future customer – and potential future customer referrals – for life.
Think Less About Averages and More About a Personalized Trade-In Process
Dealers need to offer their customers a better trade-in process in order to improve their used car operations. Following are four necessary ingredients to help them do just that.
#1 - Consistency
From an external perspective, dealers build trust among customers when they consistently provide unparalleled customer service.
They tell the world, “If you buy a car from me, I will help you every step of the way. I will assist you in finding a car that best meets your needs. You will get a fair used car valuation, you will get a fair deal, and you will enjoy the process.”
Customers whose expectations are exceeded will tell their friends, family, and colleagues. They’ll refer business to you, return to your dealership for things like service and repairs, and come back to your dealership to experience your trade-in process again when the time comes to make their next vehicle purchase.
Internally, a consistent process is one that dealers can successfully measure, track, and fine tune. It creates accountability and efficiencies within a dealership. It leaves nothing for interpretation among team members. It facilitates replication, which is key to growth and expansion.
#2 - Connectivity
Connectivity is a slippery slope. Yes, technology enables dealerships to streamline operations. But technology should never replace human interaction. As a matter of fact, human connection during the car buying process has never been more important than it is today.
Use technology to personalize your process.
For starters, your website should be a seamless extension of your showroom, whereby visitors can find the same helpful information, tools, services, and inventory that you offer in your store.
Next, respond to inbound inquiries in a timely, quality fashion. Ask questions, answer questions, listen, and learn. Avoid chatbots, and use technology as a conduit for deeper conversation between people. Create a stellar first impression, and begin building trust before the customer ever steps into your showroom.
Finally, it’s time to think beyond used car valuation averages and guidebooks. Instead, let a community like The Appraisal Lane provide exact valuations for your customers.
#3 - Extended Boundaries
Because new car sales are slowing down while used car operations are growing, pre-owned inventory is at a premium. Consider these insights from a recent Automotive News article.
Mike Stedem, the principal of Hyundai of Slidell in Louisiana said used vehicle inventory “is as tight as I have ever seen it.” His store advertises that it will buy vehicles from local drivers, even if they aren’t going to buy a car from him. He said every dealer on the Slidell strip has a similar program.
Jonathan Banks, general manager and vice president of vehicle valuations at J.D. Power, said he isn’t surprised that it’s hard for dealers to find used inventory. He thinks things may get tighter in the future as the demand for used vehicles is expected to stay strong.
Tony Thorstad, who works in e-commerce for Smart Motors Toyota in Madison, Wisconsin said, “Our biggest challenge right now is acquisition. We buy everything.”
The Appraisal Lane’s Buyer’s Network enables dealers to buy live trades from any curb in real time. Set your own parameters, get personalized notifications in real time, click “purchase,” and have in-demand inventory delivered to your curb. It’s that simple.
#4 - Transparency
Transparency is more important than ever in today’s car buying process. Your dealership can be the most transparent in your market with a few simple changes.
If a customer asks for pricing information up front, give it. Answer their questions and ask more questions of your own. Open a dialogue and begin setting expectations about your trade-in process right away.
Instead of having your customers wait in the showroom while you evaluate their trade, bring them with you. Engage the customer in the used car valuation process and guide them through the steps you take to determine their trade-in value. Assume the role of educator, and weave the customer into the trade-in process.
If you don’t want or need a customer’s trade, tell them. Spend an extra 10 minutes explaining your disposition costs like detailing, repairing, remarketing, transporting, and auction fees. Explain how these costs ultimately impact the vehicle’s value. The customer will appreciate the information and your transparency.
Remember that an independent third-party appraisal from The Appraisal Lane allows you to place a competitive offer on any car, regardless of how it fits into your inventory.
The trade-in process at your dealership can either net you a profit, or bury you in wholesale loss. From the customer’s perspective, it either makes the deal or breaks it. And it creates happy customers - or disgruntled ones - for life.
Stop relying on broad value ranges for one of the most important aspects of your business and start treating used car valuation as the cornerstone of your dealership’s success. Good luck, and happy selling!