The auto industry has experienced booming business for the past few years, but that may be coming to a halt. Predictions for 2018 are for very moderate growth, with margins at all-time lows.
A lot of franchised dealers have the mindset that new cars don’t need to be managed by age and competitive price the same way that they do on the used side. As a result, you can search just about anywhere in America today and still find a lot of dealers who are pricing their new cars at full MSRP with no incentives, regardless of unit age or supply and demand.
Dealers must start treating their new-car inventory like used cars. This means pricing to market on day one, listing all available factory and regional incentives, and then setting a strategy to drop the price as the vehicle ages.
Why is this important? Because your new inventory is costing your dealership money every single day those vehicles sit on the lot. It’s either costing you $20 to $30 per day in holding costs or lost opportunities to take in trades and win in the F&I and service departments.
How would it affect your store if you could turn your new inventory twice as fast as you currently are?
Turn, Turn, Turn
It’s easy to promote new models, especially with the added bonus of ads and sponsorships from the manufacturers. Some dealers excel at selling new cars, some at selling used. Extremely successful dealers do both through constant monitoring of inventory, adjusting of prices, and turning of units.
The only way to combat low margins is to turn your inventory even faster. Turning it twice as fast means twice the opportunities for F&I, twice the factory bonus money, and twice the potential for trade-ins and future service business.
Here’s where new-car managers can take a cue from their colleagues on the used side. Most dealerships have an action plan timeline for managing age. Typical retailing timelines for used vehicles are 15, 30, 45, or 60 days and beyond. When used cars reach those number of days on the lot, specific actions affecting offers and pricing are triggered.
Your new cars should have a similar action plan for price changes as the units age. In other words, you shouldn’t have to take big losses just to move cars. What you need to do is better monitor and manage inventory, and know ahead of time what steps you’re willing to take. If your typical turn time for new models is 120 days, aim for 60.
The biggest mistake dealers make is listing new vehicles at MSRP across all platforms, and then just sitting back and expecting them to sell. Consumers have come to expect a transparent and hassle-free, Amazon-like shopping experience where they know exactly what they’re paying. You just can’t price a new car at full retail and expect to get results these days.
Consumers want to complete 95% of the shopping process online. You have to be transparent with your pricing because they don’t want to go back and forth haggling with you. If a consumer has already done extensive research online and contacts you, you know you’re one of their finalists. At that point, everything needs to be transparent. They should be able to choose a model, build it out, see an estimated trade-in value, and see a competitive price. When they come to you, they want to have a similar experience in your store as they had online.
Another aspect of pricing is rebate and incentive management. It’s critical to have all rebates and factory incentives listed on your inventory and disclosed properly — not some of the time, all the time. Consumers don’t want to wait while you go check on prices and rebates and call them back at your convenience. They want upfront transparency and your best price.
If you’re the only dealership in your area and have few competitors, you can potentially hold more gross. However, what we’ve seen in the marketplace is that consumers are willing to travel a reasonable distance to get a good deal. That means you need to know who your competitors are and how they’re pricing their inventory. Is your biggest competitor down the street or an inch away in an online listing? Is everyone listing at MSRP, pricing extremely competitively or somewhere in between?
From what we’ve seen, it takes 10 to 15 hours per week just to manually compare prices in your market and keep up with incentives. That takes a staffer’s time away from other activities, like selling. The good news is that there are online platforms out there that monitor prices in your market, and that are auto-populated with the latest rebates.
You can save time and make more money by implementing an automated aging process for new vehicles; otherwise, some units will just fall through the cracks and continue to depreciate. Whether it’s a homemade system or an inventory-management tool you’ve purchased, you need a thorough process that monitors how long cars have been sitting on your lot and sends you reminders for each unit.
Here’s my suggested strategy for aging new cars: Price new vehicles under MSRP based on the competitive set of other similar vehicles, and focus on moving them within 90 days. After 120 days, it’s time to get super aggressive. Focus on the upside of the trade and back-end profits instead of front-end profitability.
Remember, every new car you sell contributes to the overall health of the dealership by resupplying your lot with fresh trades and increasing F&I and service opportunities.
Give your consumers a great experience purchasing a new vehicle, and they’ll likely write a good review of your store, tell their friends and family, and remember you the next time they’re looking for a new or used car.
Travis Wise is senior vice president of sales with DealersLink Inc., an automotive systems integration and networking technology provider. Contact him at [email protected].