Used car prices have been dropping across all segments of the market.
The Manheim Used Vehicle Value index revealed that used car prices are down 10 percent since October 2021. This decline is expected to continue into 2023.
Independent dealers would be well advised to have a strategy to grow their used vehicle business in what’s perceived to be a down market.
There will be challenges ahead. However, dealers who can get back to the basics of sales and communicate a clearly defined value proposition will have an advantage. Dealers should be heavily focused on certified options to retain higher margin, trade efficiency to boost used inventory and marketing messages across all channels that differentiate a dealer’s brand. Consider implementing the following.
Participate in CPOs
Certified vehicles have been gaining market share for several years now. Data shows CPO vehicles inspire more brand loyalty, increase overall market pricing and increase trade efficiency.
Yet, common misconceptions must still be debunked. Participation does not have to be expensive or time-intensive and a service facility is not required. Independent dealers should be looking at their options for certified programs offered by reputable third parties.
Now is an opportune time for independent dealers to add a CPO program to their offerings.
NIADA in January launched a streamlined and affordable CPO program tailored to independent dealers.
As vehicle prices decline, the market will still support a higher margin as long as the dealer can communicate the value of a certified vehicle. This includes a more comprehensive inspection process, strong reconditioning practices and a defined guarantee or upgrade to the vehicle mechanical coverage. Customers will pay more when they feel confident they are getting more value for their money.
Take in more trades
Trade efficiency is not a new topic, but it’s more important than ever today as dealers compete against rental car companies, franchise dealers and online retailers for limited used vehicle inventory. In addition, some manufacturers have all but cut out leasing programs, so there is not likely to be a channel of lease vehicles returning to the market.
Dealers who can take more trades on the vehicles they sell and explore alternative channels such as direct purchase from consumers, will procure more inventory. Strong reconditioning practices will enable dealers to maintain higher margins and in turn offer more for the trade.
A CPO program is a proven way to boost trade efficiency as certified vehicles command higher prices which allows dealers to offer higher prices for trades. The more trades a dealer can take, the more vehicles they can sell.
Market your value proposition
It’s smart to develop a high value proposition to compete against franchised dealers and the more than 60,000 independent dealers fighting for customers. Customers won’t know what a dealer can offer, if they are not told. Marketing your store’s capabilities must span all customer touchpoints, especially online, where more than 80 percent of customers conduct research and narrow down vehicle choice.
How a dealer communicates strong reconditioning practices and the value of CPO vehicles is critical to realizing the best market price. Marketing materials online and in-store all work to get the word out. Staff must also be properly trained so they can explain why vehicles command a higher price and why customers should do business with your store.
The average customer sees a dealer with a franchise sign and believes they are getting a quality vehicle. Independent dealers need to drive some of the same value propositions as their franchise competitors to attract customers, maintain margins, and win more trades. Make a strong statement about the quality of your brand and your inventory now, to weather market challenges in 2023.
James Virgoe is Senior VP of GWC Warranty Sales at APCO Holdings, home of the GWC Warranty and EasyCare brands. Virgoe brings more than 20 years of experience in the automotive industry, with a strong track record of managing top-performing territories, developing new channels of business, and building revenue-producing
relationships.
