Scarcity is The Best Thing to Happen

Right now vehicles are selling at all-time record profits, salespeople are able to make a good living, and store net profitability is more than most ever thought possible. So much money is being made that the days of having to give away units seem like a thing of the past. It has been a great twelve months for most dealerships across the US. The current situation feels like a musical chair game, it is fun while the music is playing, but dealerships need to face the reality that the music is going to stop soon and there will be fewer cars to sell. Higher gross is making up for some of the issues that lack of inventory has created, but the time is approaching when the stores will have zero new vehicles to sell and nothing in the pipeline. The situation leaves dealers asking,

“What do we do now?” 

Here are some practical things that I believe dealers need to be focusing on over the next few months and areas that they can have a positive impact on their store to keep the money flowing. It will be a tough couple of months for stores on the variable operations side but things will get better.  

First,

every store needs to evaluate new car marketing spends. Stores that are spending thousands of dollars on search engine marketing (SEM), pre-roll and display advertising need to determine if the current budget lines up with current inventory levels. In fact, most of the dealers that I am speaking with are talking about some model lines being pre-sold prior to hitting the ground. In this case, it is wasteful to allocate portions of the budget to those pre-sold model lines. For SEM I suggest looking at reducing the SEM budgets and instruct them to focus the new car budget on high converting keywords like “Chevrolet Dealer” and move away or stop all model searches that the store does not have adequate inventory for. I would also suggest that dealers use this time as an opportunity to negotiate a discount with third-party lead providers, TV and radio stations based on the fact that inventory is significantly reduced.  

Secondly,

the acquisition of more used vehicles has to become a top priority for dealership sales departments. Dealers that lived off trade-ins are really going to feel the pressure.  Some of the most successful stores prior to the pandemic already had a strong used car purchasing division. They implemented vehicle buying teams that purchased vehicles all over the county from the various auctions. However, even these stores are struggling to acquire inventory at prices that make sense to resell. 

Today’s auctions are overinflated with numerous dealers all over the country bidding for a small pot of units. In some factory sales across the country, more than 2000 bidders are online for just 50 units. It doesn’t take long for a dealer to get frustrated and realize that buying units this way is not going to be easy.  Here are some areas that dealers can use outside of typical auction lanes to land more used cars:

• Online Auctions – DealersLink, OVE, SmartAuction, ACV, BackloCars
• OEM Lease Returns Websites
• Craigslist, Facebook Marketplace, Local Classifieds
• Private Party – Drive by Units
• Dealership Database Mining – Email and Phone Campaigns
• Dealership Service Lane
• Automotive Classified Websites – Private Party Listings – Cars.com, AutoTrader, CarGurus.com
• AutoTrader/ Kelly Blue Book Instant Trade-In-Offer
• eBay Listings

Lastly,

the entire sales process should be re-imagined around acquiring the customer trade-in. Asking questions to new customers to find out what they are doing with their current vehicle. If they are selling it privately, are they open to getting a bid from the dealership as well? The average customer does not fully understand the complexity of the used car market right now, and they might have underpriced their vehicle. Customers will appreciate the dealer paying them additional money for their trade and in most states, customers can receive a tax discount from trading a vehicle in on the same transaction. In addition, consider offering additional dealer discounts on the vehicle that the customer is purchasing if they are trading a vehicle. Dealers can go as far as adding additional line item discounts on the dealer website that shows the trade-in discount. The effort that a store puts into getting both the customer's trade and financing in the next couple of months, will pay off big dividends as inventory draws down. 

The first part of 2021 has been a wonderful ride for most dealers, now is the time to start making adjustments to stay profitable as the inventory continues to dwindle. Hopefully by October dealers will start seeing an increase of allocations and products but even that will take time to hit the dealer lots with the current backlog of customer orders. It is a crazy time in the business, but remember that every dealer is facing the same issues and this too shall pass.