You, as the dealer principal or general manager, have two options when you feel that used vehicle gross profit per-vehicle-retail (PVR) is mediocre (or worse). You can yell at your sales managers to increase the gross profit PVR. Or you can determine if there is a Used Vehicle process which is “broken” or needs improvement. As yelling doesn’t accomplish much for long, I recommend that you consider your processes and fix them.
The four types of trade-ins
I have an NCM Retail Solutions client who likes to say that there are only four ways to take in a car:
- Steal the car
- Take it in for the right money
- Stretch to make a deal
- Bury yourselves in the trade-in
During this conversation, let’s assume we are discussing trade-ins that we "took in for the right money" or "stretched a little bit to make a deal."
Step One: Appraise the vehicle correctly
Many dealer principals or general managers believe that they make gross profit when buying the car. That is, the dealership makes its money when we trade for or purchase it, as opposed to when we retail it. One of the factors in making gross profit when you ‘buy the car’ is determining if we appraise it correctly.
I imagine your sales managers mostly value trade-ins of your franchise accurately. You need to evaluate their performance on other franchises, too, to protect the appraisal. Here are some sample questions to get you started:
- Do you think they correctly appraise trade-ins of other franchises accurately?
- When it is necessary to replace the windshield on a luxury car, do you think they know which luxury car has the $300 windshield or the $3000 windshield (which includes cameras and sensors)?
Step Two: Understand the costs of misappraisal
If we appraise a trade-in or lease-return incorrectly, say by $500, we will probably make $500 (or so) less gross profit than if we caught it, assuming we took in the trade for the right money in the first place. So, it’s critical that you get the appraisal right.
Another of my NCM dealer-clients likes to include the line item “$300 hidden reconditioning” on the used vehicle appraisal form. This reminder helps his sales managers consider hidden problems that are often missed during an appraisal, such as the water pump, rear main seal, and other items we may not see or hear during the evaluation process.
Step Three: Replace negotiation with documentation
To solve the misappraisal problem, I recommend to my NCM clients that their fixed ops managers provide pricing to their sales managers for the forty or so most common maintenance items on their most frequently accepted models, based on the CP labor rate and 40% gross-%-sales for parts, which is cost plus 67%.
Once this menu is available, your salespeople—or, preferably, sales managers—can defend the appraisal to prospects by showing them the costs to repair these common maintenance items. It’s hard to argue against the costs in black and white. This approach of replacing negotiation with documentation was one of Dale Pollak’s philosophies when he defined used vehicle “velocity” by designing vAuto.
There’s so little room for negotiations nowadays, so you need to prepare to counter any objections while accurately appraising trade-ins and lease returns as a means to increase your dealership’s used vehicle gross profit PVR. With the right process in hand, you’ll see better results than yelling at your staff.
How does your dealership defend the appraisal? Tell us here. Have more dealership concerns? Meet with an NCM Consultant to identify opportunities for improvement in your store.