How Dealers Are Finding Vehicles

Saying it’s tough to find quality used vehicles today is an understatement. Some dealers say today’s market is a result of a “perfect storm” caused by a lack of lease turn-ins, rental car companies keeping units longer, Cash for Clunkers eliminating potential trades and dealers keeping more trades. Combine all that with growing consumer demand, which is causing dealers to build up their used car inventory, and it’s no surprise that the used car market is tough today.

To ensure success in used vehicle sales, dealers are leaving no stone unturned when looking for used cars to buy.

McCarthy Auto Group
In Olathe, Kan., Kevin Nachbar, the vice president of sales and remarketing at the McCarthy Auto Group, is in charge of pre-owned inventory acquisition for the group, which consists of three locations with six franchises. The vast majority (98 percent) of the inventory he buys is through SmartAuction and Manheim’s online auctions.

Kevin Nachbar"At some point, with the lack of inventory, it becomes who's willing to pay the most. That minimizes your return on investment, but it's still the best approach."

- Kevin Nachbar, VP of Sales and Remarketing, McCarthy Auto Group, Olathe, KS

He’s been buying used vehicles for more than two decades and been purchasing via online auctions for over 10 years now. When he first started buying online, there weren’t many dealers buying the majority of their used cars via the Internet. However, times have changed. He said, “Now, most of the big players are online, doing their research, looking for cars. With 24/7 access to inventory and information, you can pretty much comb the entire country through multiple auctions daily to pinpoint the exact inventory you’re looking for.”

He refers to his process as “engineering inventory.” Every day, he reviews what sold the day before, and he tries to “duplicate the winners and eliminate the losers.” He engineers the group’s inventory “all the way down to colors, miles, equipment [and] condition.” With this approach, he said, “You’re not settling for what’s available.”

Combing the entire country for inventory can be a tedious process. Nachbar simplifies the process by setting up specific searches for the vehicles that fit his “core inventory,” which is “what sells the fastest and is the most profitable.” The issue is all dealers are looking for the same thing. He said, “Most dealers have tools now helping them manage their inventory, so they know what’s selling fast and making the biggest return on investment.” This creates stiff competition for the best vehicles. “At some point, with the lack of inventory, it becomes who’s willing to pay the most,” he said. “That minimizes your return on investment, but it’s still the best approach.”

On average, he buys 125 to 150 vehicles per month at auction. “Everything is primarily one-owner, either off-lease or [repossessed vehicles] owned by a manufacturer, bank or credit union,” he said. What he’s not looking for are vehicles that have sat on other dealers’ lots for retail. He surmised, “If another dealer couldn’t sell it, what makes me think I can sell it?” He doesn’t dismiss all dealer-owned units, though. For example, if he sees a Lexus dealer wholesaling “a GM product that fits my inventory,” he’ll check out the vehicle. If the dealership’s only had the vehicle a few days and its history is good, he’ll buy it. “I’m figuring there’s nothing wrong with the car. It’s just not part of his core inventory, so he’s going to wholesale it.”

He also doesn’t stock many vehicles from rental operations. “A very small portion of my inventory will be rentals … it’ll normally be something that has less than 10,000 miles and has most of the equipment,” said Nachbar. Such vehicles can help him stand out from competitors. “It seems like the majority of used car dealers have duplications, the same types of vehicles with a lot of miles on them, and they’re all trying to sell them for the same kind of price … How I differentiate myself from them is I always have the lowest-mile [vehicle] with the most equipment with a really aggressive price. It makes me stand out, so I can sell those vehicles more quickly.”

The McCarthy stores retail used vehicles pretty quickly. Ideally, he likes to keep the group’s inventory on a 21-day turn, and he’s close to that goal. The group retails between 350 and 400 used vehicles per month, and 91 percent of those vehicles retail within 27 days.

While the group does keep more trade-ins than in the past, he said the price they fetch at a wholesale auction sometimes make them more lucrative to wholesale. “We find that the shortage of lower-end vehicles, especially after Cash for Clunkers, has made it to where we get so much money out of [trades] wholesale, that it’s almost not worth the hassle of trying to retail those cars,” he said.

Finish Line Ford
In Peoria, Ill., Bill Pearson, co-owner of Finish Line Ford, maintains that purchasing used-car inventory at traditional auctions is the way to go. About 70 percent of the used vehicles purchased for his store are from traditional auctions, while 30 percent are from online auctions. Granted, the dealership is purchasing more online compared to a year ago, when he said only about 10 percent were from online auctions.

While the dealership relies more on the Internet, he’s still leery of buying online, especially when it comes to vehicles that are just outside their bumper-to-bumper warranties. He said, “It’s very difficult to buy that [type of vehicle] sight unseen, in my opinion, and quite risky, honestly.”

Until recently, when the market became so competitive the dealership had to look to other sources, Finish Line Ford only used Manheim. They still buy exclusively from Manheim online, but buyers began attending ADESA’s physical auctions in June 2010 in addition to Manheim. Now, 60 percent of vehicles purchased in-lane are from Manheim and 40 percent are from ADESA.

Bill Pearson"It's very difficult to buy [vehicles online that are just outside their bumper-to-bumper warranties] sight unseen, in my opinion, and quite risky, honestly."

- Bill Pearson, Co-owner, Finish Line Ford, Peoria, IL

Pearson plus two other buyers stay busy purchasing used vehicles for the dealership. “On a very busy week, we might potentially get to 12 [auctions] either online or in-lane.” He spends two to three days a week on the road attending auctions. “I typically hit Nashville, Dallas and Sarasota, and we’ve got another guy that does predominantly the Indy; Chicago; Flint, Michigan; and Detroit area. Then, I’ve got a guy that focuses a lot online for Milwaukee, Detroit, Atlanta and some of the other Dallas sales.”

He recognized that buying at physical auctions keeps him on the move, but used the analogy, “If you only fish once a week, you may starve. If you fish every day, you’ll probably be ok.” Although the market’s been tough, Finish Line Ford is definitely not starving. In 2010, the store retailed a total of 3,245 used vehicles, which are the dealership’s bread and butter. “We’re 10-to-1 used-to-new [sales], which is unheard of, but our market is over-dealered,” said Pearson.

On a good month, the dealership will take in trades on 40 percent of sales, which can amount to over 100 a month, and they’re keeping most of them to retail. The store wholesales about “13 to 15 [trades per month] that are outside the realm of making them into nice cars.” Pearson said, “We’re seeing trades with 250,000 to 300,000 miles … There are some weeks we just hope to see a trade under 100,000 miles.”

Another source for inventory the dealership uses is’s Trade-In Marketplace. “We’re a Buying Center for Trade-in Marketplace … That’s been a very big success for inventory acquisition for us.” The Buying Center is the highest level of the program offers, and Finish Line has been on the program for a year. Pearson explained: “It allows consumers on to sell their trades outright with a guaranteed value … They can either buy [another vehicle] from us or they can utilize that cash to go elsewhere … In a great month, we’ll acquire an extra 20 to 30 cars [with this service].”

He added that several dealers “understand that is a very good way to acquire inventory.” He likes the fact that if he doesn’t want to keep a vehicle purchased from a Trade-In Marketplace lead, he’s “guaranteed an auction value” for each vehicle. He said, “If we don’t want a car, we just take it to a Manheim auction and drop it off, and they give us a check. So it’s guaranteed money to us.”

As the used vehicle market fluctuates, Pearson plans to monitor the market closely so he can quickly adapt. He said, “I’ve always had the adapt-or-die mentality, so we’ll just keep adapting to what’s in front of us.”

Melloy Dodge
Matt McCarty, used car director at Melloy Dodge, said, “The market has been a little bit weird over the last few months.” However, he added that the Dodge store in Albuquerque, N.M., is faring well, retailing between 130 and 150 used vehicles per month, many of which are CPO vehicles and “rental rockets.”

The dealership acquires many of the rentals (most of which are imports) from Enterprise. While a Dodge store may not be the first place one would think of to buy a Toyota, he said the dealership stocks a selection of Corollas and Camrys for its bankruptcy department. The dealership works with two finance companies on bankruptcies that will loan up to 135 percent of Kelly Blue Book wholesale on Toyotas and Hondas, so the bankruptcy niche has proved successful for Melloy’s used car department.

Matt McCarty"I'm actually buying [diesels] out of Pennsylvania and Missouri right now through OVE. We have to keep up with that because we sell more diesel trucks in this town than anybody."

- Matt McCarty, Used Car Director, Melloy Dodge, Albuquerque, NM

Diesel trucks are also very popular, but McCarty said they’ve been especially tough to find. To find them, he’s expanded his buying radius. “I’m actually buying [diesels] out of Pennsylvania and Missouri right now through OVE. We have to keep up with that because we sell more diesel trucks in this town than anybody, so it’s a constant buying cycle.”

The dealership retails used vehicles from $3,000 to $40,000, so it keeps as many trades as possible, “even the high-mileage, older vehicles” as long as they pass safety inspections and emissions testing. McCarty said, “I’d rather put the money in fresh trades from my new car department than actually purchase and pay [for] buying fees, transfer fees, post-sale inspections and whatnot” He added, “Anytime we can, we will put a little bit more money in people’s trades just because it all comes down to the same amount anyway.”

And although the dealership keeps most trades for retail (about 70 percent), McCarty believes too many dealers in his market rely solely on trades, which is the opposite of his approach. He loads up on inventory and accrues write-down money by adding a $500 pack on each vehicle. He’s then able to write down an aged unit if necessary so that it’s priced competitively. “I can write down a vehicle typically to be the price leader in the market. I don’t want to be the cheapest or most expensive, but I do want to be … close to the cheapest.”

Other dealers in his market have been asking how he’s able to stock so many vehicles. He said the local auctions either don’t have enough quality inventory or are saturated with buyers, making it “almost impossible” to buy from them. He’s spends hours a day on OVE looking for the right inventory and buying from auctions as far away as Pennsylvania, which is more than 1,600 miles away from the dealership. He added, “I’m using a transport company that’s cutting me a break. It usually comes out to about $300 a transport [per vehicle] all the way from the other side of the United States.”

While much of the dealership’s used vehicle inventory is from online auctions and trades, McCarty still relies somewhat on physical auctions to help stock the lot. The Melloy organization consists of four different stores, so one of the buyers who purchases for the other stores picks up some vehicles for the store.

Buy-back mailers have also generated inventory for the dealership. In November 2010, the dealer started mailing out offers to customers who purchased new vehicles two to four years ago. The mailers offer 110 percent of Kelly Blue Book fair for vehicles. Even though the market’s tough, McCarty’s digging in to ensure Melloy Dodge comes out ahead. He said, “We’re doing what we have to do to keep [the lot] stocked.”

McCluskey Chevrolet
While trade-ins provide the biggest source of used vehicle inventory at McCluskey Chevrolet in Cincinnati, Ohio, CEO Keith McCluskey works closely with two full-time buyers to ensure he has a well-stocked lot and a good mix of used vehicles. The buyers mostly purchase online from SmartAuction, OVE and OPENLANE, but they also visit a couple local auctions. He prefers online auctions to physical auctions because they allow buyers to shop the entire country, instead of being limited to one lane at one location. “It’s much more efficient,” he said.

Keith McCluskey"[Several factors are] driving up the prices that all of us need to pay to acquire the vehicles ... The good news is I would say both [new and used sales] are going to continue to trend up."

- Keith McCluskey, CEO, McCluskey Chevrolet, Cincinnati, OH

While he said fuel-efficient vehicles tend to be the toughest to find due to demand generated by high gas prices, he said the market in general is more difficult. “When the credit crisis hit, a lot of that leasing dried up, so there aren’t as many vehicles coming off lease. And the rental car agencies tend to be keeping their vehicles longer, so there are fewer of those cycling through the system,” he said. McCluskey, whose store retails about 250 used vehicles a month, continued, “With the demand picking up again post-Great-Recession, dealers are [growing] their used car departments, doing more volume and keeping more of their trade-ins.” When you combine all of those factors, the result is fewer vehicles to buy at auction, which is “driving up the prices that all of us need to pay to acquire the vehicles.”

He now keeps 80 percent of trades, opposed to an estimated 70 percent before the recession. Acknowledging that a 10-percent increase isn’t very sizeable, he said, “We’ve always been aggressive in the lower-end price range with subprime financing, so that change for us probably wasn’t quite as drastic.”

Another way the dealership supplements its pre-owned inventory is buying from private sellers. He said, “On our website, like almost all dealers, [we] offer to appraise and purchase people’s vehicles if they’re not in the market yet to buy a vehicle. Sometimes our salespeople call some of the ads they see on craigslist, on the Internet or in the newspaper to see if the person is looking to just sell the vehicle or if they’re looking to replace it.” When a salesperson finds a vehicle the dealership purchases from a private seller, that salesperson receives a $100 spiff. McCluskey added, “If they’re just selling it and it’s a vehicle we’re looking for, that’s a good thing. If they’re also looking to replace it with something else and we pull a lead out of that, that’s a great thing.”

Through the tough economy, he’s maintaining a positive outlook. According to McCluskey, advances from banks and finance companies are better than they were 12 months ago relative to NADA left-side and Black Book. Recently, he’s seen both used and new sales increase, a trend he expects to continue. “The good news is I would say both [new and used sales] are going to continue to trend up probably for the next few years … until we get back to a more normalized [market],” he predicted.

Dave White Acura
Even through a fickle market, Dave White Acura in Sylvania, Ohio, has been upping its used vehicle sales. When Kim Taylor, general sales manager, moved to the Acura store two years ago from another store in the Dave White organization, it was selling five to 10 used vehicles a month. Now, the store is averaging 35 to 40 per month, and Taylor’s goal is to continue growing the department. “We’ve got to get to the next level … I need to get to 50 [a month].”

Kim Taylor"I don't stock a lot of domestics because we have a Chevy store right beside us stocking a lot of domestics, but if I see something that might be a good price-point car or a good car for secondary finance, I'll certainly buy it."

- Kim Taylor, GSM, Dave White Acura, Sylvania, OH

Success in the used vehicle market, she said, has “a lot to do with your inventory,” which was one of the first things she had to get squared away when she started at the Acura store. She said having the “right mix of inventory is extremely important.” Now, about 50 percent of the used vehicle inventory at Dave White Acura is certified pre-owned, while the other 50 percent is mostly import vehicles. “I don’t stock a lot of domestics because we have a Chevy store right beside us stocking a lot of domestics, but if I see something that might be a good price-point car or a good car for secondary finance, I’ll certainly buy it and put it on our lot.”

To stock the lot, Taylor relies on a number of sources. Trade-ins, lease turn-ins and OPENLANE’s online auction provide the bulk of the Acura store’s pre-owned inventory. She does most of the buying on OPENLANE, while a second buyer (who also purchases for another store in the group) purchases a handful of vehicles from traditional auctions for the store. Another small, but reliable, source of CPO inventory is the dealership’s service loaner fleet, which is comprised of 10 Acuras and rotated about every quarter. She said while it’s a minor source, it’s nice to be able to pull a vehicle from the loaner fleet if a customer is looking for something specific that’s not on the lot for sale but is currently a loaner.

Private sellers provide another source of inventory for Dave White Acura. A couple of salespeople from the store search locally for private sellers in the newspaper and on craigslist,, and even side of the road. “We’ll luck out and get a car or two a month,” Taylor said. She and her salespeople also monitor vehicles coming in for service. If a good-looking vehicle comes in, they appraise it and talk to the customer to see if there’s an opportunity to purchase a good used vehicle and put the customer in a new vehicle. Taylor said, “We try to come up with as many creative ways to find cars as possible.”

Acknowledging that buying vehicles has been difficult lately, she said the toughest vehicles to find are worthy pre-owned Acuras. She can buy lease turn-ins online from Acura, but she has “to be careful” what she buys. “There are good cars on there, but you’ve really got to dig in and look. Most dealers are like me; if we get a lease turn-in that looks pretty decent, we’re keeping it. We’re trying to keep every lease turn-in possible.”

To aid the inventory acquisition process and determine what to put on the used car lot, she uses’s Scarcity Index reports and vAuto’s Live Market suite.

Vol. 8, Issue 8