Pre-owned vehicle sales is a profitable business, but building, maintaining and selling a solid inventory of cars isn’t easy, and there’s often a good amount of guesswork involved. The time, the energy and the money spent on sourcing the best cars can end up feeling like a lot of wasted effort, especially as desirable cars are increasingly hard to come by today and a majority of the sourcing options turn lower profit margins.

At the same time, the market for pre-owned cars is steadily growing. Cars are built to last, making used cars more desirable to some. Most dealerships that are seeing success in pre-owned sales have reduced their time at auctions and are employing software tools to refine their sourcing, set measured limits on their investment, shop online for inventory and help determine which cars are more likely to sell.

These solutions can be helpful in some respects, but they don’t go far enough. They still involve many of the same costs associated with sourcing cars off-lot: auction or other sourcing fees, transport costs, expenses incurred to repair and recondition cars — not to mention find them in the first place — and fixed costs such as interest from floor-plan financing. It’s expensive to keep cars on the lot — and the longer they sit, the more expensive they become. Plus, with a lot of dealerships using the traditional sourcing options, they end up bidding against each other, further lowering their margins.

The good news is that there are software solutions that offer a more advanced, more profitable way to approach pre-owned car sourcing. This allows dealerships to acquire cars that are in high demand, turn fast and increase margin, often while being very easy to come by.

Trade-ins for Quick Sales

Have you considered using your DMS as a source for pre-owned vehicles? With the right software, you can increase your inventory of high-quality, highly sought-after cars right from your database. Studies show that trade-ins sell at a 40 percent faster rate than other sourcing models, such as auctions. The bottom line is having tools to bring in more trade-ins is very valuable.

There is technology available designed to help you do this through advanced algorithms that create profitable opportunities based on all customers in your database, including categories such as retail and lease contracts, pending-service appointments, warranties and more. Keeping informed of these customers and knowing how and when to approach them with the right message, at the right time, with the right offer, is key.

Let’s take a closer look at a few examples. Your service lane is a prime place for converting customers to sales and receiving their cars as trade-ins. Getting customers on the lot is half the battle. This technology identifies the top opportunities in your DMS, tells you exactly when they’re coming in for service and gives you the offer that is personalized just for them.

Industry averages show current customer contracts average 69.5 months, with 10 percent extending to 84 months. Waiting close to seven years is not a successful plan. With advanced data-mining tools, however, you will find the conversion sweet spot. For example, algorithms used by these tools show that current sweet spot to be 30 months, and having the credible offer that contract customers are the most likely to be receptive to can convert them more quickly. Warranty and mileage alerts will give you insight into your customers’ driving habits. Say you have a customer who is in the middle of her lease, with 24 months to go, but is already receiving penalties for going over miles. Wouldn’t informing her of this be a great service, and help keep your dealership front-of-mind when she’s ready for her next car?

Creating credible offers both for your customers with equity and for those without is another way that this technology offers you a large number of these opportunities.

Build a Specified Inventory

There are times when you want to build your inventory of a specific make and model or type of pre-owned car. Say you determine that you need a lot of 2015 Ford F-150s, quickly. Find your best prospects and send them their upgrade or trade-in offers. You can even make a game of it with your sales and service teams, giving a bonus to the person with the highest number of trade-ins.

Or maybe you need a large inventory of certified pre-owned to help move newer units. Find past CPO customers, service-conquest customers, top-traded models and more.

Reduce or Even Eliminate Guesswork

Data-mining tools also give dealerships the opportunity to eliminate guesswork entirely when sourcing the right used car for the right customer. That 2014 Ford Mustang Janice is bringing in for service next Monday? It’s exactly the car that Jim is looking to purchase (along with dozens of your other customers). Maybe Janice will choose to forgo service when you present her with a printed-out upgrade offer today for a similar payment (because you already know, based on her shopping behavior, what she wants), and you’ll have her car back, ready for Jim to buy.

Increased Profits in All Areas

Trade-ins from your customers are valuable on many levels. Because these cars came from your DMS, you’ll have a good story on each one, which consumers like. Cars sourced using data-mining tools are proven to sell faster than cars sourced other ways, so they might not even hit your floor plan, giving you an opportunity to “float” them and sell for increased profit.

You’ll also save money on the fixed-cost expenses associated with traditional used cars, leading to increased profits in all areas. Of course, in addition to every trade-in, your dealership gets a sale.

Increasing your ROI and your gross profits with pre-owned sales doesn’t have to be difficult. With the right software, you can convert your DMS from a dealer management system into a data mining solution, and win big at pre-owned.

Kendall Billman