The flood of used vehicles in the market has increased competition and threatens profitability. Now more than ever, dealers need a data-based strategy to capture their share of the market without giving up the gross. Using your data to create a market-based strategy is your best defense against costly acquisition mistakes and dwindling profits.
A “Moneyball” Mindset
In 2002, the Oakland A’s General Manager Billy Beane was entering a post-playoff season having lost his top talent to teams with higher payrolls, and was searching for a way to put together a winning team on a budget. The movie version of this true story plays up the conflict between old-school wisdom and new-school data, but at that time “sabermetrics,” or the use of data in scouting, was a new concept. Beane formed an alliance with the Paul DePodesta, the Cleveland Indians’ special assistant to the GM (referred to as “Peter Brand” in the movie) and hired him as his special assistant. Together, they merged the art of scouting with science (data) to build a winning team they could afford.
What Makes a Win
DePodesta won Beane over with his ability to demystify winning baseball games with data. He suggested the A’s add players to their roster who were good at getting on base. Why? DePodesta reasoned that getting on base was the first step to winning. Getting on base creates the opportunity for runs, and runs create wins. At first glance, his view of how to win might appear simplistic, leaving little room for old-school wisdom, but it was a measurable place for the A’s to begin.
Some say the process developed by Beane and DePodesta changed the game of baseball. What we know for certain is in 2002, the Athletics became the first team in the 100-plus years of American League baseball to win 20 consecutive games.
Building Your Moneyball Dealership Team
There are multiple factors that lead to a sale, from marketing to merchandising to lead generation and more. There is, however, a simple, data-based approach to growing your used car sales that can be extremely effective, and dealers have had measurable success using the following strategy:
1. Use sales data to verify the top-performing vehicles in your store.
2. Create strategy (pricing, acquisition, etc.) around those vehicles.
3. Align your acquisition and sales processes to attract your ideal consumer.
In verifying your top-performing vehicles, you will want to ask and answer the following questions:
• What are the vehicles you sell well? Begin by identifying your top five volume vehicles and top five quickest-turning vehicles and then compare those numbers to the same data points in your market. It’s common for an opportunity to reveal itself here. Have you been stocking the right vehicle with the wrong trim level, or have you missed an emerging market trend?
• What vehicles attract the customer you want? Here is where you look for trends in the data to reveal important connections. What percentage of your customers return for service? What percentage trade in their vehicles? What are your gross profit percentages from the front end? The back end? What percentage of your customers are prime credit? Sub-prime? Where is there an opportunity for you to understand something new about how all the profit centers of your dealership are impacted by the vehicles you stock and sell? Obtaining at least a surface-level understanding of what attracts the customers you want to serve will allow you to do it more often.
• What are the vehicles that fit your brand? Are you a General Motors dealer trying to sell an abundance of pre-owned Toyotas? It might seem obvious but, in the absence of this knowledge, you can find yourself trying to fill a lot of round holes with square pegs. Creating a data-based structure around acquisition will inevitably improve your sales. Knowing when to wholesale a trade and which vehicles your salespeople are great at selling will help you to avoid costly impulse auction buys and the “race to the bottom” pricing strategy that steals your gross profits.
• In light of this data, what changes in acquisition and sales processes are needed? Determine who will be held accountable for buying and managing inventory. How are they deciding what to buy? Once the data is gathered, you’ll want to discuss criteria for vehicle acquisition moving forward.
Next, who oversees pricing and appraisals, and how often are prices changed? If this person is not the same as the person buying inventory, they must also be aware and on board with a data-first approach. Your acquisition and pricing strategies will set the stage for your sales team, so clarity here is essential.
Finally, you’ll want to identify your top salespeople and the vehicles they sell most effectively. Why not stock more of those vehicles? Taken a step further — if the person buying and managing inventory isn’t readily able to answer this question, it may explain why certain vehicles are on your lot six months beyond acquisition, and why another spiff won’t move them. Staying focused on the strengths of your salespeople is good for business and should guide a data-based strategy.
Hollywood might never make a movie about your “Moneyball Dealership,” but your happy customers, successful employees and increased profits will be their own reward. To learn more about using data to grow your dealership profits, feel free to reach out to me directly.