Finding (or Losing) Profit in the Appraisal Process

Is your pre-owned department suffering from low gross on the front end? Do you blame your pre-owned manager for not holding gross? If these questions sound familiar, you’re not alone. Many dealerships across the nation are facing the same challenges when it comes to optimizing their profits on pre-owned vehicles. Luckily, there are actions you can take right now to make the most of your gross.

Your Appraisal Now

The best opportunity to create gross is at the time of appraisal. It is during this crucial time that you will determine if the vehicle will be profitable or not. Assuming we can accurately evaluate reconditioning costs, and have the appropriate showroom control to defend the quality and pricing of the vehicle, we can ensure we do not give up what gross is left over. The one thing I see consistently in my dealership consulting visits is inconsistent appraisal practices. It is here that many dealerships are losing their profits.

Recently, I asked four managers in the same dealership to independently appraise the same vehicle using their individual process. Not surprisingly, the dollar difference from low evaluation to high evaluation could fund a long weekend for two at the beach. Even with this large disparity, all the managers believed they had worked through the appraisal in the same way. After the exercise, I looked at the dealership's "Look to Book" metric, and it mirrored the trade performance of the managers. It’s interesting how the numbers said one thing, and the employees said another …

A Better Appraisal

When it comes to improving your appraisals, there are several excellent, old-school techniques requiring documentation, modern software appraisal tools, and even mobile apps that can help managers complete the appraisal process consistently. The problem at most dealerships is that these tools are rarely used to their designed abilities. The response I hear most from dealers is “it takes too long to fill in everything” or the “Look to Book” measurement is “flawed.” While it may seem tedious, I recommend spending those few minutes to find that extra gross that you could defend. By doing so, you might find enough profit to equal one less additional vehicle you must sell to make up the missed gross from the appraisal.

Additionally, I would recommend doing a complete detailed appraisal, ideally with the customer’s help, to gain credibility with the customer. When your team rushes through this process, many errors can occur that throw your gross into jeopardy. Consistently, I see managers and salespeople justifying devaluations of a trade with measurements like tires, brakes, paint, dings, etc. I also see many of these same team members give their customers appraisal figures with nice round numbers. This protocol provides an opportunity to call into question the validity of your reconditioning estimate. To top it all off, we may also be rushing through the appraisal without even having the customer test drive the vehicle they want to buy. These factors are profits slipping away, all because of a lack of proper showroom control and consistent appraisal processes.

Processes Matter

This past year I visited a big box pre-owned store to test their processes. Their consistent approach to appraisals was apparent. They promised, through evaluation of your vehicle, to provide you with the best trade-in or sell-to-us value possible. This process was quoted at 30 minutes, but took much more time. However, when the offer was made to the customer there was no “bumping of the trade.” Instead, I saw many customers simply supporting or validating the evaluation. The dealership also did not discount their vehicles during the selling process, maximizing their potential for gross. The result of this hard work was the line of people awaiting their appraisals.

Finally, let’s assume we’ve now traded for the vehicle. The next step in protecting your profits is reconditioning. If we have estimated the mechanical and cosmetic repairs correctly, we should be able to get the internal repair order and/or the sublet invoice to see if we estimated our costs within 10% of the final reconditioning costs. If not, investigate where were we missed the estimate, and learn from that for the future. Some managers maintain an estimate book with various models’ reconditioning costs to ensure accuracy of estimating. Everything we touch has a metric that is tied to math … use it as your best friend when it comes to maintaining gross.

As you can see, there is a lot of opportunity to find profits in your appraisal process. Make sure you defend the gross in the showroom with great showroom control, have accurate reconditioning estimates, and don’t rush through the process. You have created the potential for leftover gross, now it is up to you to protect it.

Learn more from Randy and the other moderators and consultants by joining a 20 Group or scheduling in-dealership consulting. They are veterans in the industry and are willing to share their knowledge and experience with you. Take advantage of it today.