While all dealers take in vehicle trades, more savvy dealers these days are proactively seeking vehicles from private sellers. At first look you might find that the average used car manager believes that buying cars from consumers is not worth the hassle, but after diving deeper into why dealers shy away from this more profitable approach to vehicle acquisition, I believe I've come across a less obvious factor - some used car managers love their auctions.
At a recent private dealer summit I attended for owners and operators deeply involved with the used car business of their dealerships, several attendees commented on the reality of how often they discover their wholesale buyers and used car managers being so attached to acquiring vehicles at auctions that they reject the idea of a more profitable approach that doesn’t involve going to the auction.
Many used car managers I speak with are preoccupied with brokering deals and moving metal. They don’t have time to be on a computer for vehicle listings from private sellers. They do however have a day or two dedicated each week for the auction.
Typically this involves leaving the dealership for an early lunch, getting themselves to and from the auction, often with fellow dealer cohorts, and working their way back to the dealership for an hour or so more. When I talk with those that frequent the auctions, their interest level in moving away from them is often low and seldom a priority.
Disrupt Old Practices
Used Car Operations expert Ed French was recently quoted as stating that, “Margin compression in used car operations means dealers must disrupt old practices that result in high vehicle acquisition costs and slow time-to-market speed.”
One way to improve acquisition volume and vehicle quality is to source inventory internally. This means not only sourcing trade-ins from existing customers and service lane customers, but also proactively buying cars from consumers.
Internally sourced units save auction fees and transportation costs, an average gross savings of $600 to $800. These vehicles are typically newer with mileage lower than auction candidates and they don’t need as much reconditioning so they’re frontline ready faster.
Simply put, buying from consumers is more profitable. This isn’t to say dealers shouldn’t use auctions, but if you’re attached to them for the wrong reasons and turning away from alternative ways to stock used vehicles then there’s a good chance you’re unnecessarily eating up your dealer profit.