Dealerships in 2024 will continue to face used car sourcing challenges. I recently read an article that netted the issue: “Dealers navigating a used-vehicle market that already allows little room for error are eyeing another obstacle: worsening used-car availability.”
According to BlackBook data:
- Seven to 10 million fewer new vehicles were sold during 2020-2022 compared to 2016-2019.
- Few vehicles were leased from 2021 to 2023.
- Rental and fleet companies did not replenish their new car inventories.
Trade-ins remain essential, so when their owners walk through the door, give them the fairest offer you can — and be sure the spread you need isn’t diluted by appraisal oversights that either cost you potential sale and service customers or erode profit when appraisal recon estimates don’t match their actual costs.
Eliminating wide appraisal variances and slow reconditioning of trades means more kept revenue.
“This profit per vehicle strategy couldn’t have come at a better time,” said Jared Ricart, president of the Ricart Automotive Group, whose used car operation sells 600 to 800 used cars monthly, and with whom we talked recently.
“All used car managers share a big fear — we don’t want to make a mistake,” Ricart added. “The used car market is as volatile as ever, and this transparency into profit per vehicle eliminates appraisal guesswork.
Predictable profit per vehicle is defined as zero sales cost due to little or no disparity between estimated and actual reconditioning costs. “When a dealer acquires a vehicle to make a reasonable profit, I assert that their investment must not be ‘upside down,'” Dennis McGinn, founder and CEO of Rapid Recon, said. “But to get there, appraisals must build from a higher level of vehicle inspection detail than provided by a physical walkaround, a road test and standard VIN scan tools — even when conducted by their most seasoned and skilled appraisers.”
From my perspective of fixed operations, I would add that accurate appraisals eliminate surprises. Surprises add unnecessary stress to fixed and variable relationships. When an appraiser is confident, they got it right, but should a technician find an issue rooted deep in the vehicle, both parties tend to feel that the other is falling short.”
“Profit per vehicle is about accuracy and saving that one vehicle — we appraised it for this number, we estimated this profit, and can we execute that promptly?” said Matt Hubiak, director of preowned operations for the Swickard Auto Group. The group operates 50 franchises and 33 rooftops in Alaska, Washington, Oregon, California and Texas.
Dealers say having better data also helps them develop appraisers’ skills.
“The appraisal delta tells me about my appraisers’ skill set,” said David Long, executive general manager of Hansel Auto Group, which will retail 10,000 vehicles this year, having served the California Bay area for 62 years. He shares group responsibility with Justin Hansel. “For instance, if one of my appraisers at a particular store has a steady appraisal delta of $1,800 and another’s $800, I want to help that first appraiser estimate his reconditioning costs better. And just by the mere fact that we’re measuring it, it’ll find improvement.
“If I have 10 appraisers, every one of them will be weighted best to worst on the delta. The more I can find the center here, narrow this gap, and apply vehicle-specific inspection and repair data, the more we should bring that gap together,” Long said.
More efficient reconditioning narrows another gap.
“Slow recon, meaning more than five days, erodes sale margin quickly as holding costs on those cars pile up daily until the car is sold,” McGinn said. “There should be no room for this needless error in a general manager’s diligence.”
McGinn has authored four books about revolutionary reconditioning. His fifth, ASPIRE to Predictable, discusses strategic reconditioning time-to-line and its contribution to narrowing trade appraisal variances.
