Auction prices are high, CarMax is paying ungodly prices for inventory to ship all over the country, and demand for quality pre-owned inventory is at record levels. Can there be any better reason for capturing trades?
Actually, yes! Missed trades frequently mean missed deals, loss of vehicles in operation and lost fixed ops revenue. You can protect your income in all these areas by aggressively pursuing and tracking appraisals. Try this three-step plan:
1. Monitor Your Appraisal-to-Sold Ratio
Dealers often monitor their appraisal capture rate in the hopes of procuring 55% of the cars and trucks they appraise. That’s a useful benchmark, because it tells you how effective you are at capturing those vehicles. But it won’t tell you how effective you are at securing an appraisal in the first place.
Why is this important? For the same reason it’s important to know how many write-ups you’re getting: The more vehicles you appraise, the more opportunities you will have to capture trades. You want to write up as many customers as possible because, if you don’t, you can’t sell them a car. The same goes for appraisals: Your appraisal-to-sold objective should be at least 150%, so to deliver 10 cars, you need to conduct at least 15 appraisals.
2. Offer the Appraisal as a Benefit
Early management introduction is an effective way to assure the customer they are in good hands and give them an idea of what’s going to happen. Your managers should then ask, “Are you replacing the car you’re driving now?” These days, customers have been conditioned to withhold that information, so they may say “No” or “I haven’t thought about it,” even if they are planning to trade. No matter how they answer, present the appraisal as a benefit: “We always provide our customers with an appraised market value for their current vehicle. It doesn’t cost anything, and it won’t take any extra time.”
The same goes for Internet leads. Always make it very clear that the store is interested in purchasing the customer’s vehicle whether they buy a new one from you or not. It’s a basic strategy, but in a market that is increasingly competitive for pre-owned vehicles, it has become crucial.
3. Appraise Vehicles From the Service Drive
The service drive is a great resource for trade-ins. Many customers are facing repair costs they’d be happy not to pay, and the time they spend waiting is typically more than enough to conduct an appraisal. Again, make sure you are offering it as a benefit, just like you do for retail customers.
Another good strategy is to place dry-erase boards in service waiting areas and list the makes and models the store is looking for. If you aren’t looking for any in particular, use the daily appointment schedule as your guide!
An important part of capturing trade-ins from the service drive is motivating your service writers. Because most service writers earn their commission on repairs, they may be less than enthusiastic about a strategy that threatens to take those repair dollars away. Use financial incentives to make it worth their while to participate in the appraisal process. These can include spiffs for appraisals or captured trades or even commission on the sale of a captured trade within the first 30 days of inventory. Remember, on average, you’re paying a wholesaler $500 profit on every vehicle you buy. You can motivate a service writer for far less than that.
It’s too expensive to rely on auctions and wholesalers to provide inventory. If you buy 10 cars a month, you’re paying around $5,000 to the wholesaler. That is money that could be kept in-house to reward managers and staff and increase your dealership’s bottom line.
Bill Mokry is West regional manager for Service Group, an F&I income development company. [email protected]