Pub. 16 2017-2018 Issue 2

N E W J E R S E Y C O A L I T I O N O F A U T O M O T I V E R E T A I L E R S I S S U E N O . 3 , 2 0 1 7 26 new jersey auto retailer W e’ve been hearing for months…maybe even more than a year: “It’s coming…” The floodgates are about to open with millions of used vehicles projected to return to dealership lots over the next few years, from lease returns to rental fleet turnover to all things commer- cial. Many of these cars and truck will balloon dealers three or four-year-old used vehicle inventories. And I hate to quote Bach- man–Turner Overdrive, but “You ain’t seen nothin yet.” Yes, it’s a great song, but also a scary prediction of what’s to come for the automotive industry. Let’s look back as we look forward, and ponder pricing decisions on your front line. What do you buy and how much do you pay for it? The 2017 Manheim Market Report noted that in 2016, leases grew to an all-time high of 4.4 million units nationally. The double-edge to that sword was that in 2016, off-lease volumes were 18 percent higher than CPO sales. Guess what! 2017 is tracking higher in both categories. What does that mean? In many markets, used car values of close-to-new vehicles, will continue to decline as supply catches and, quickly, exceeds demand. Many dealers have already begunmaking adjust- ments. Maybe you are carrying less of the close-to-new vehicles, keeping edgier cars to supplement the front line. But this coming year’s market adjustment will require far more than a couple of tweaks to your front-line strategy. It will require a full overhaul of your process, while leveraging all available data points. We all know you make or lose money at the time of acquisition. Does the car you’re bidding on fit your Dealership’s Natural Ability ( DNA )? Is it a proven unit in your store? Does it provide average-to-high gross? The answers to these questions help de- termine what you should pay? Don’t come back from the auction and tell everyone how you “stole” the car. Remember, you were the last one with your hand up, willing to pay the MOST money. Don’t over think it. Avoid paralysis by analysis, and focus on EFFICIENT acquisition. Test yourself with these questions: 1. What were my acquisition sources for the last 6 months? 2. What was the average fee paid for those sources? 3. What was the average cost of reconditioning by source? 4. What was the keeper percentage for each source? 5. How many vehicles had to be wholesaled? 6. What was the average retail turn by source? You may notice that I haven’t mentioned anything about Gross. Why? Because, if you are able to use the above questions to guide WHAT you buy and HOW you buy, Gross Profit is the one thing that will come naturally. Let me take a minute to address pay plans. Are you still paying $200 per car to a Used Car Manager or an outside wholesaler/ contractor? STOP! STOP right now! You are losing if you are not making it someone’s responsibility to stock the front line effi- ciently, with cars that will have the highest probability of retailing within 28 days using bottom-line pay plans. The buying trends of a per-car-pay-plan are that most buy very little in the first 10 days, a little more in 10-to-20-day mark and the majority in the last 10 days. That is what we call binge buying. It’s not based on need or best fit for the store. This practice is, by far, the one that will put you at the highest risk for aged inventory and wholesale loss. Do yourself a favor: analyze YOUR dealership’s needs, adjust YOUR purchasing process accordingly and purchase vehicles that will sell quickly. Your Gross Profits will thank you. Strap In — The Used Vehicle “Pricing Rollercoaster” Is About To Begin BY MIKE WATERMAN MikeWaterman is Senior Vice President at ACV Auctions, Inc. He can be reached via email at mwaterman@acvauctions.com.