Expect extreme market volatility and heavy acquisition competition for used cars ahead.
CarMax, Carvana, Shift, Vroom and others are acquiring used vehicles “at a rapid rate of acquisition in anticipation of Q2 and Q3 [supply] being extremely short,” used car consultant Ed French told me recently. For instance, Nasdaq said late last year that Carvana’s inspection and reconditioning operations are set to process 500,000 used cars a year — and 2 million long term.
Also tightening supply is what French calls the chipdemic: the semi-conductor shortage-driven ripple effect to used car supply. Chipdemic will cost the industry $61 billion in revenue this year across the entire supply chain, dealers included.
“This could be 10% of global demand this year, its impact, which craters the recovery. We don’t think we’re overstating this,” said consulting firm AlixPartners, reported by CNBC News.
“I’ve never seen a more unpredictable situation,” AutoNation CEO Mike Jackson told Yahoo Finance.
A recent J.D. Power Used Market Update said used prices would remain at the historic highs driven upward by COVID-related economics. It cautioned that due to “virus outbreaks, vaccine rollout, federal stimulus, employment conditions, new-vehicle production constraints and the change in the (federal) administration,” dealers could expect market volatility.
All this trickles down to fewer new cars in dealers’ showrooms, and one can anticipate continued high demand for certified pre-owned and other newer-model used vehicles.
How do you respond? Take a hard and critical look at all processes to bring efficiency and transparency to customers. The single-most money-making operation to gain efficiency for most dealerships is reconditioning.
“Most dealers don’t have the block-and-tackle basics in place for this, and as a result, the profit dealers are leaving behind is astounding,” French said. “You have to be a very efficient, fast-turn, 14-day-bucket used-car business to survive. That’ll turn a dealership selling 30 used cars a month to 120.”
• Dial-in your acquisition-to-sale-ready performance to meet the demand for quality used cars, whatever the market.
• Manage to a 30-day turn; strive to get to 14-day turns of inventory.
• Employ used-car reconditioning software and best practices to reduce reconditioning time to an accurate, honest three to five days. Dealers who do should sell up to 25% more cars than they stock.
If you’ve already figured out how to combat the Carvanas of the industry, please tell me how to help other dealers. But if you haven’t figured it out, I have great examples of what others are doing to remain competitive. Give me 20 minutes, and I’ll share them with you. Contact me through AutoSuccess.