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From: Jared Hamilton
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Ed Brooks

Ed Brooks Automotive Digital Marketer

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The Real Used Car Death Spiral

While looking over an upcoming conference agenda, I noticed a bullet point on a speaker’s agenda: Winning pricing strategies -avoiding the death spiral of pricing to market average.

This is a real concern, and one I address every day. The concern is that if everyone rushes to be a little more competitive, there will be no gross left in your used cars. One dealer after another will participate in a race to the bottom.

The truth is the used car market is much more dynamic, with lots more moving parts, than this simplistic view represents.

  1. If you pay no attention to the market, your customer base will be only the 10% to 15% of the market that doesn’t shop online.
  2. If you can stay ahead of the trends by using real data in real time, rather than historical data and outdated registration figures, you’ll be stocking less price sensitive cars – the ones in short-supply and higher-demand, right now, than your competition that is “living in the past”.
  3. Price isn’t everything (but it does matter)! On many cars, being in the ‘Competitive Range’ is enough to get your share of online traffic. Add in great merchandising and a good dealership reputation and you have a winning combination. But if you stock High Market Days Supply units that are dying on the vine at every dealer in town – and price those cars higher than the guy down the street – be prepared to see very little traffic, have aged inventory, and higher wholesale losses.
  4. Trend-followers will have trouble identifying the right inventory from the troubled inventory and make poorer decisions than the dealers that are staying ahead of the trends. Those watching the market will be moving to cars with more potential for a higher gross and identifying the trends much earlier.

The Real Used Car Death Spiral comes from reduced traffic due to over-pricing. The higher you price the less traffic you generate. Then you feel that you must have a higher mark-up per car and make more gross per deal to make up for the short-fall… and you get even less traffic. Or you hide costs to the consumer in your advertising and eventually destroy your reputation… and you get even less traffic.

Make no mistake, living in the past is no way to succeed in the future.

Jim Bell
Great post as always Ed. The one thing that kills me is when I hear a dealer that will shoot from the hip and not use a pricing tool of some sort say that dealers using it are the group that is in the race to the bottom. We have to know what is being searched for and there are great tools out there to be used. If you don't use them effectively, you may be that dealer that is racing to the bottom. If you are the dealer that is using it effectively, you will be in the race to the top.
Carl Bauer
Price is also ONLY an issue in the absence of VALUE....so build your dealerships value. Lifetime car washes, or oil changes. Certify your cars or put warranties on them, do things that set your cars apart. Quality used cars are hard to find and if you treat your customers right and set your cars up properly, you'll get traffic and gross profit.
Ed Brooks
Carl, I wish the days still existed when customers shopped a half dozen stores on a Saturday giving each store an opportunity to differentiate themselves and their cars in person. Those days are are gone. Buyers today shop online and only visit one or maybe two stores in person, on average, before they buy. A simple monitoring of SRPs and VDPs on the major online competitive marketplaces will demonstrate that without a competitive price (not the cheapest - but competitive), traffic suffers dramatically. The good news (and it is very good news) is that when a dealer leverages the market's transparency and works WITH the customer to prove their price is valid to BUILD VALUE, discounting can be minimized or avoided completely.

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