There are riches in niches

Have you ever been to a training program that excited you, and then a few months later, you go to a different training program that teaches the opposite technique? Is it possible that they could both be right and offer you some niche opportunities?

Let me give an example. About a-year-and-a-half ago, a dealership priced vehicles to be super-competitive with everyone. They turned their inventory and sold a whole bunch of units at a fairly low gross profit.

What did they do differently for the first quarter of 2011? They competitively priced some of their aging vehicles, but left alone the ones that book well for special finance. They did not price them nearly as competitively as they did in 2010, and made small changes on a weekly basis. They also became much more creative in their advertising. Their creativity was not geared around their Internet advertising. It was geared around old-fashioned, traditional advertising (in this case radio). This dealership also uses third-party listing sites, takes 27 pictures of each vehicle and prices them online.

Now, let’s compare the first quarter of 2011 with the first quarter of 2010. If you are not priced competitively (in the top 10 online) on your used vehicle inventory and you lowered your monthly advertising with the third-party listing sites by $2,350, would conventional Internet thinking say that you are probably selling fewer vehicles? Let’s look at the results through the end of April.

Through the first quarter of 2011, this store averaged 189 used units at a front-end gross of $2,113 versus 175 units at a front-end gross of $1,687 in 2010. This is a $426-per-unit increase. When you add back in wholesale (loss or gain), the gap increases to $477 per unit. The store has a policy of no vehicles over 60 days old, so that is an apples-to-apples comparison for 2011 and 2010.

More importantly, their used profitability is up 44 percent. Does this mean that the concept of having super-competitive online pricing to rapidly turn inventory is wrong? Absolutely not. However, this should be more of a guiding concept rather than strict doctrine. 

Let me go on record to say that I do not have anything against highly competitive online pricing and third-party listing sites. In fact, when these tools are used correctly, I think they can be huge assets. However, I also believe that sometimes in this industry we get brainwashed and limit our thinking, potentially causing us to miss opportunities for higher grosses.

How can you best use this information right now? Let’s look at trucks and sport utility vehicles. Gas is in the $4 range at the time this article was written. Would it be a good idea to price truck and sport utility trades competitively from the start? What about small cars? Where is the demand for these vehicles? Does it matter if you are not priced in the top 10 on the Internet for these vehicles? Is this an opportunity for increased gross?

Two other topics franchise dealers tend to stay away from are "as-is" and BHPH. However, with used vehicles at a premium, why wouldn’t you look at these two opportunities?

Let’s start with "as-is." What are you doing with your $2,000 to $7,000 ACV trades? Most dealers are keeping them. The next question is: are you reconditioning them at door rates? That used to be the absolute rule. However, that can put you completely out of whack with book values and make lower-priced vehicles too expensive for the consumer.

There is nothing like having a $6,000 ACV and then adding an $1,800 service bill to it. Could you realize the same profit margins by using aftermarket parts and reducing the labor rate for these vehicles? One dealer I know calls these the “Rusty Trusty Program.” This should be plus business, and plus business does not always follow the same rules as your core business.

Here are some reconditioning ideas: make the labor rate around $50 to $60 and use a D-level technician. Safety-inspect these vehicles only, get used parts, and charge a reduced rate for details and inspections on these vehicles.

The same concepts for reconditioning can also be applied to BHPH. Just make sure you are fully educated on BHPH, have plenty of cash and have a business plan. There are plenty of vendors that offer excellent training in this field.

Now, if you can offer multiple niches within your used vehicle department, how much more profitable can you be? You can have a great selection for the regular buyer and make good grosses. You can also cater to the special finance buyer, the Internet buyer, have an "as-is" section and operate a BHPH business. As they say, there are riches in niches!

Vol. 8, Issue 7