Best Practices for Used Car Learned From 2021

March 04, 2022

So, if you're a car salesman looking to make the big bucks in 2022 from 2021's best practices, what's the best way to go about it? Well, it's been a great year for used cars, and based on what we've seen, dealers who manage their inventory well are going to make a killing. Obviously, volume is important - but so is profitability. If you can find a way to sell high-priced used cars without sacrificing your margins, you're going to be in good shape.

 

The used vehicle market had a good year, with all departments seeing increased profitability. The wholesale and retail markets were both on the rise, with some departments doing even better than others.

 

Why did some dealers succeed more than others in 2021? We looked into it and found that most dealers prioritized the same things, but the key difference was how they executed them.

 

Here are the five best practices that will shape your success in used vehicles this year:

 

1- Sell More Cars With Less Inventory

In 2021, dealers operated with a meager 35-40-days supply of inventory, significantly less than the typical inventory for a year. Notwithstanding this shortage, some dealers still managed to sell record numbers of used cars.

 

Most dealers can't remember the last time they sold more than 50 percent of their inventory in less than 30 days. 

 

On the other hand, the best dealers were able to do it by becoming ultra-efficient in buying, refurbishing, merchandising, and pricing their used cars.

 

Some dealers initially discovered reconditioning as a crucial focal point after seeing a near-empty lot in front and a line of automobiles in the back.

 

 

2- Expand Your Inventory Sourcing Channels

The most remarkable thing that happened in the past year was the number of dealers who flipped the script on their inventory sourcing. Rather than relying solely on wholesale suppliers and trade-ins from new vehicle sales, these dealers began pursuing inventory from a wider variety of sources—their CRMs, service lanes, communities, lending partners, and so on. They were determined to find cars wherever they could, regardless of the cost.

 

Although this shift toward more creative sourcing methods generally led to an increase in costs, the increase was offset by better margins on the cars that were sold. In fact, many dealers found that they could actually sell used vehicles at a higher price point than they did before and still maintain healthy profits.

 

From what we observed, digital retailers like Carvana and Vroom have been taking business away from dealerships. But now, with Kelley Blue Book Instant Cash Offer and in-house buying centers, car dealerships have a new way to get cars directly from customers.

 

It's a win-win situation: customers get a fair price for their car, and car dealership owners get to keep the business they would have lost.

 

 

3- Put the Customer First in Your Appraisal Procedure

In the world of Carvana and Vroom, appraisals always start with the customer. You just need to fill out an online form with all the relevant information about your car. Then you'll get an offer for your appraisal, sight unseen. If you like what you see, a transport will come to pick up your car and take it away. Customers seem to love this process - it's more convenient and transparent than anything they've experienced before when buying or trading in a car.

 

The dealers who got the most cars and made the most money did so by letting their customers take the wheel. They gave customers the tools they needed to appraise their vehicles on their terms and backed it up with an in-store or in-driveway experience that was transparent and easy.

 

In other words, they let the customer be in charge and then ensured a smooth and easy transaction.

 

This year, the best practice of using investment value-based metrics and strategies to manage appraisers and the outcomes of vehicles purchased from specific customer-based acquisition channels will become even more popular. Why? Because car dealer wants to make sure they get the most bang for their buck, used vehicle supplies will remain limited.

 

 

4- Price Vehicle Based on Investment Value

For much of 2021, dealers have been exploiting the market by putting outrageous prices on their used cars- and it's been working! If a car doesn't sell quickly, who cares? As long as they can unload it for a quick profit, they're still in the green. I've heard countless stories of dealers accepting a measly $2,500 for a car when they could've easily made $3,500 if they waited. Silly dealers!

 

While some dealers stuck to a disciplined investment-based pricing strategy, others quickly moved on cars with lower investment values. For example, they would purchase a car at auction for all the money they needed and then price it to move right away.

 

Contrarily, if they had a valuable car, they priced it to get the most money they could. They did this by pricing is based on how much the car was worth. This helped dealers turn their cars faster and make more money.

 

If you want to make more money and sell more cars, try following an investment-minded pricing strategy! According to vAuto data, dealers who priced their vehicles this way achieved 10% more gross profit and sold 13% more volume than those who used the less efficient "explore and exploit" strategy. So switch it up, and see how much better your results become!

 

Now you may think about what explore and exploit strategy is, and it's meaning. The explore and exploit strategy is where dealers purchase a car at auction for all the money they need and then price it to move right away. This is okay but not as good as pricing your car based on investment value which helps turn your cars faster and makes more money.

 

 

5- Every Vehicle Should Be Evaluated for Its Worth as a Wholesale Opportunity

The current market for wholesale vehicles is amazing! Not only do you get to buy auction vehicles at rock-bottom prices, but dealers are also making a killing by wholesaling cars they don't want to retail. We believe that it's a win-win for everyone involved! So if you've got an extra car lying around, go ahead and wholesale it – you'll make some easy money!

 

Now that we know what 2021 taught us, it's more important than ever for car dealers to evaluate each vehicle's wholesale potential. That way, when they choose to retail a car, they're making the most financially sound decision possible. Even if we want to be "retail-first" dealers, some vehicles and circumstances sell them wholesale is the best option.

 

 

Bonus Practices For 2022

 

Test Drive

It's important to offer a test drive to any customer looking to buy a car. This allows the customer to get a feel for the right car and decide if it's the right fit for them. Not only is this a great way to make more sales, but it also builds customer loyalty.

 

If you're not currently offering test drives, you're missing out on many potential sales! Start offering them today and see how your results improve.

 

 

Inspection

Most customers will want to have a car inspected as well as vehicle history reports before they buy it. This gives them the peace of mind that they're getting what they expect, and it also protects them from any potential problems.

 

By offering free inspections, you're not only doing right by your customers, but you're also likely to make more sales. Many customers will be more likely to buy a car if they know that it's been inspected and is in good condition.

 

 

Don't Make In-person Initial Negotiations

When a customer is interested in a car, don't make initial negotiations in person. Instead, send them a price quote via email or text. This will help you avoid any uncomfortable conversations and make the process easier for you and the customer.

 

Price quotes are a great way to get the sale done without hassle. So start using them today and see how much easier your life becomes!

 

 

Car Insurance and Warranties for Secondhand Vehicles

When selling a used car, it's important to offer auto insurance and warranty options to your customers. This gives them the peace of mind that they're getting a good deal and helps protect them from any potential problems. Don't forget to choose a viable insurance company for your vehicle's safety.

 

 

Final Thoughts

In 2022, the used vehicle market will be in great shape! Car dealers who stay on top of things and are aware of risks and opportunities will do just fine. 

 

The market is likely to normalize as new vehicle inventories strengthen and demand for used vehicles will be declined. Not to worry though, dealers who follow our advice will be just fine!