How Inventory Shortages Can Be Solved
Going to the auctions for used inventory is like playing the lottery. Maybe you get lucky and get a prime front-line ready vehicle but, most likely, you won’t. With the hyper-competitive market that we are in for dealerships to have cars on their lot to sell, many dealers are paying more for these vehicles than they are worth. And with almost 17,000 franchise dealers (via NADA) and over 20,000 independent dealers (via NIADA) you have 37,000 dealers that need vehicles to sell. There is no doubt that consumers are out there ready to buy – even if the prices are higher than they normally would be. It’s a given that dealers would love to acquire inventory on their own without any competition whatsoever.
Most dealers have a built-in supply of vehicles that they can choose from. Those vehicles are in the one department that is responsible for most of their dealership’s revenue – their service department. While an auction is hit or miss because a vehicle you are bidding on “looks” nice, you may get it back to the dealership and discover issues that were not included in the inspection report by the auction house and the only vehicles that there can be no arbitration for are those exceeding 100,000 miles. The good news? Many banks have increased their underwriting policies to include vehicles with this many miles whereas they would not finance them in the past. The bad news? You happen to win a bid on a pretty vehicle just to get it back to your dealership and find out it needs the entire transmission replaced and can’t go to arbitration.
A dealership’s best source of vehicle acquisition is in their service drive. Yes, this isn’t a new thing. Some dealerships will post up a salesperson in their service drive every morning to inquire whether a customer is looking to get into a new (to them) vehicle. Whether they are successful or not, could your dealership be missing out on vehicles that are hot commodities in its PMA? Absolutely!
What strategy should a dealer utilize to minimize acquiring duds while maximizing acquiring diamonds?
It’s simple – but still takes effort. Most dealerships set service appointments. That means that they know what vehicles are coming in. If a used car manager looks at what vehicles are coming in for service the next day, they simply need to identify the vehicles that are desirable and work with the service director to ensure that those customers are handed off to sales to make an offer. Since service already has the vehicle (and they are going to do it anyways,) you will have a multi-point inspection report already done so you’ll know whether the vehicle has any issues. You’re going to have to send them through service for recon before selling them anyways.
Now the sales department has a chance to acquire a prime unit without any competition. And will probably end up with a sale if they do. The challenge that exists in this plan is that typically the sales and service departments are protecting their own revenue. Service advisors would rather the vehicle go through service and upsell a customer to get a bigger RO added to their dossier rather than turn the vehicle (and customer) over to sales and lose that service revenue. This has always been a challenge and pain point in dealerships – service vs. sales. Heck, even the service department marks up recon and repairs to the sales department before the vehicle can be ready to sell!
What’s best for the dealership though? Getting a unit for sale at a lower cost which will increase sales and F&I revenue? Or not caring and letting the vehicle get serviced?
Whatever you decide, if sales and service work together, only a little effort between the used car manager and the service director/advisor is necessary to acquire more inventory, perhaps turn those into sales, hopefully into future service customers and maybe even gain a lifelong customer with will benefit both service and sales and, most importantly, the dealership.