Back in 2018, we had the opportunity to meet Billy Beane at the Hireology Conference in Chicago.  Aside from being a great conference held by Adam Robinson and his team, the opportunity to hear Billy speak and meet him was a memorable experience.  Billy Beane is the legendary General Manager of the Oakland A’s who together with Paul DePodesta changed the way Major League baseball teams scouted and signed players.

Billy and Paul were able to do this by using statistical analysis of players that at first appearance, weren’t the typical heavy hitters most MLB teams were pursuing.  Hearing Billy speak firsthand about the approach that he and his management team left me thinking about how much the used vehicle market has changed over the past ten years. 

The advent of vAuto has given dealerships the ability to identify the fastest turning, highest return on investment vehicles in any market using, you got it, statistical analysis. 

As the Velocity method of used vehicle inventory management has evolved and after reading Dale Pollak’s newest book, Gross Deception, has had me thinking a lot about how a good cross section of dealers now have that same statistical capability that a decade ago was only being applied by a handful of dealers.  This translates into the ability to determine the when, what and where for used inventory sourcing when used diligently. 

Every individual that we have contacted about buying their vehicle is a customer (human) interaction.  It’s very easy to classify these as “leads” or “opportunities” but the reality is that each of these vehicles represent a human interaction.  Often the person behind the vehicle was already apprehensive about working with a dealer and doesn’t completely understand the value proposition behind selling their vehicle in this manner. 

It's tempting, when first starting to acquire vehicles directly from consumers, to lowball or at least undervalue potential acquisitions that are directly from consumers.  Setting low or very low cost to market pricing for consumer acquisitions often leads to not acquiring the vehicles or worse, providing a consumer with a negative experience that in turn creates negative reviews. 

Where at the auction, we often bid up to buy the desirable, fast turning vehicles we need to replenish our inventories.  We will often do the same to put a deal together on a new vehicle, adding to the value to make the deal happen. 

Why don’t we factor in the cost differences when acquiring private party vehicles?  If we know that an identical vehicle that can be acquired from a private party seller would cost us additional auction lane fees, transport and other associated costs, we should be factoring these acquisition costs, or at least be considering these costs when buying from a private party. 

One of our most common objections from consumers and dealers when starting a private party acquisition program or buy center is that the sellers’ price expectations are too far apart to make the purchase.  We believe the above is one of the common causes for being “too far apart” in pricing. 

We put together a list of factors to consider when buying vehicles directly from consumers that will help to put the pricing for private party acquisition channel into perspective. 

1. 1. What would this vehicle cost me if I were to buy it at auction? (including fees)
2. 2. What is the average “cost to market” metric for the vehicle?
3. 3. What is the “market days supply” for the vehicle? 
4. 4. What is the “retail sales volume” for this vehicle? 

Using a transparent pricing model, factoring in the additional cost of acquisition of the same or similar vehicle at auction, the cost of not providing a premium consumer experience and the rapid “time to line” a private party acquisition presents, I think most of us would be willing to go a little further or add money to the consumer offer. 

In fact, using the same principles above Carmax and now Carvana have transformed the private party acquisition process into a positive consumer experience that is frictionless and mirrors so many of the other Internet enabled processes that provide us with convenience and value. 

Going back to Billy and Paul from the Moneyball approach, if we change our perspective about hitting the grand slam or home run on every vehicle we put a price on and begin using the statistics that we have access to already, we can instead hit singles, doubles and triples while acquiring more vehicles and improve the consumer experience in this arena, we too can develop an all-star approach to acquiring vehicles from consumers. 

Buying Cars from Customers
By Mark Curcio

While it’s no secret that the used vehicle market is continuing to become a primary driver of profitability for franchise dealerships, other used vehicle retailers are already ahead of the curve in terms of inventory sourcing and honing their acquisition strategies.

We’ve watched auto retailing titans like AutoNation continue to focus on used vehicle operations
as part of their business plan and CarMax continues to dominate the market with their multitude
of locations and large inventories. Carvana, a relatively new player, has entered the space and
expanded rapidly over the past two years.

It’s not a surprise as new vehicle prices continue to rise, and customers hold on to their vehicles
for longer than at any time in history. When we put into perspective sales numbers for
automotive retail, new vehicle sales totaled 16 million in 2019 with used vehicles far outpacing
that coming in at 40 million vehicles sold. The challenge a strong used vehicle market
presents for all automotive retailers is inventory sourcing.

Auctions purchases are more competitive than before with the aforementioned used vehicle
retailers scrambling to replenish their inventories. Trade ins are a great source of inventory but
less predictable in terms of acquiring the fast moving, high return vehicles. What many dealers
have overlooked or are just beginning to capitalize on are “buying cars from customers” what
has traditionally been referred to as buying vehicles at the “curb”.

An advantage that large scale used vehicle operations like CarMax and more recently Carvana
have is that they are buying vehicles directly from customers wherever and whenever it is
possible. This acquisition strategy makes a lot of sense in terms of both acquisition cost,
building the brand experience and providing customers with another reason to interact and
conduct their business with these automotive retailers.

In a recent quarterly earnings conference call the CEO of Carvana, Ernie Garcia, has repeatedly
stated that Carvana is focused on buying cars from customers as their main source of used
vehicle inventory. In fact, Carvana has grown this acquisition strategy over 300% in the
past year. A recent Automotive News article wrote the following.

As Carvana grows rapidly in size and scope, the number of vehicles the online used-car retailer
buys from consumers has skyrocketed — and CEO Ernie Garcia expects that growth to
continue. “Whereas traditional trade-ins are restricted to the number of customers
buying from Carvana who also have a vehicle to sell, buying from consumers in general,
regardless of whether they intend to purchase, is an almost limitless proposition”.
Logically, there's no natural ceiling on how big it can be," Garcia said in September at an
investor conference in New York.

The direct from consumer acquisition strategy is why Vehicle Acquisition Network was founded.
Our industry leading software platform and training makes buying vehicles from customers more
efficient and effective. With data compiling, customized search criteria and rapid CRM
communication methods, a dealership can implement a customer acquisition strategy while
strengthening the dealership position within their market. We believe this profit center is far too
valuable to outsource to a third party.

If you’re interested in discussing buying cars from customers in more depth or you would like to
learn about the VAN software platform and training, you can reach us directly at 855-952-4949.