Stop Scrambling for Used Car Inventory

Stop Scrambling for Used Car Inventory

Technologies that facilitate online transactions are becoming indispensable for dealers seeking to effectively engage with private sellers.

It’s no secret that dealers are facing a complex set of challenges when sourcing used car inventory. While supply constraints have been a major focus, it’s also important to consider how demand dynamics are influencing the used car market and complicating dealerships’ ability to source inventory effectively. Shifting economic conditions, financing rates and consumer preferences collectively dampen demand and complicate the sourcing of inventory.

To put this into perspective, 81%, or more than 60,000 dealerships, say that these historic inventory shortages are their most critical challenge (Boston Consulting Group).

The solution has been right in front of us, or should we say, right in our backyard, this entire time: the private-party market.

The Trend is Clear

According to the National Automobile Dealers Association (NADA), private-party sales accounted for 28.6% of the used car market in 2015. By 2022, that number had grown to 36.9%. This trend is expected to continue, with private-party sales projected to account for 40% of the used car market by 2025.

Five years ago, it was crazy for dealers to have a dedicated buy center focused on buying off the street. Today, though still early on the adoption curve, buying centers are much more prevalent.

This shift toward private-party sales is not just a reaction to supply shortages; it also represents a strategic move by dealerships looking to diversify their sourcing methods and reduce reliance on traditional auctions and trade-ins. As more consumers turn to online platforms to buy and sell cars directly, dealerships are increasingly tapping into this market to replenish their inventories.

Technologies that facilitate online transactions, such as digital marketplaces and advanced data analytics tools, are becoming indispensable for dealers seeking to effectively engage with private sellers.

Advantages of Buying from the Public

Dealers that engage in private-party vehicle acquisition often see a 72%-84% reduction in acquisition costs compared to the national average of $987 per car buy fee from the auction. On top of the self-sufficiency and cost-savings, the competitive advantages are unmatched:

Market Absorption: For every deal that happens through Craiglist or Facebook Marketplace, that’s one less deal for you and two potential customers you’ll never have.

Turning Sellers into Buyers: These sellers always come back, and you’re creating lifelong relationships that will eventually turn into more gross.

Growing your Brand: The direct marketing of reaching out to local customers builds awareness and strengthens your brand.

Scalability: Sourcing from private sellers offers opportunities to expand your team, broaden your market or adjust search parameters to continuously grow your business.

Emphasis on Buying Rather Than Selling

In the automotive world, car dealerships and selling are often synonymous.

You might find 15 salespeople hustling on the floor with only one buyer behind the scenes. What’s interesting, however, is that even though sales are entirely dependent on the quality and availability of inventory, the emphasis on buying seems to be overlooked.

Dealerships are well-structured on the sales front, with detailed SOPs, clear goals and a defined management hierarchy. Meanwhile, the used car manager is often simply handed a credit card and sent off to the auction with the hope that a full truck of cars eventually returns.

Dealers who swap their obsession from selling to buying are discovering the untapped goldmine of profit potential. Stores with dedicated buying centers and significant investment in their acquisition departments find that they need only half as many salespeople. This model not only enhances the dealership’s ROI by securing better deals and sidestepping steep auction fees, but it also improves:

Unique/Customized Inventory: The ability to find highly desirable inventory that turns fast no matter the salesperson.

Increased Foot Traffic: A larger and more diverse inventory attracts more customers, enhancing overall foot traffic and bolsters culture, energy and momentum.

In short, you cannot sell what you don’t have, and your best buyer will always outperform your best salesperson. The longer it takes for dealers to understand this movement, the higher the likelihood of them being swallowed up by the ever-emerging private-party market.

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