One of the ways car dealerships buy a car from consumers is as a trade in. The trade in has become more important to car sales, now more than ever before. And there are some car dealerships that are getting their hands on the trade in and some who are losing their grip on the trade in. There are a few factors that car dealerships can start thinking about, like making sure they price their cars to market, efficiently manage stock age, track and respond to high demand makes and models in their areas.
The internet has disrupted everything, even car sales
However, the internet has disrupted everything, even car sales. Middlemen have come between car dealership car sales and the car buying consumer. Pricing, demand & supply data have become much more transparent and car buyers are spending more time online and less time inside the physical car dealerships – they are doing their car research online more and more.
Car buying consumers now walk into the car dealership and they’re a lot more serious than they ever were before. Car buyer also have many more avenues to “sell” their cars rather than trade in. All this has led to the car dealership beginning to lose the grip on the trade in.
I spoke to 2 successful used car dealerships: Bobby Petkov, Dealer Principal – MitMak Motors and Dean Lawson, Dealer Principal – Fury Group to find out how they strike the right balance between speed, profitability, and how car dealerships can ultimately get the trade in back.
Car dealerships should not lose out on trade ins during lockdown
Bobby was all about creating open means of communication, keeping both staff and car buyers engaged at all times making it easy for facilitating the transaction. Through the use of a roster / schedule, it makes it easy for the normal day to be simulated i.e. waking up early, revisiting leads, compiling detailed reports and above all over-communicating the detail yet structuring deals for trade in vehicles, even if the consumer is still driving the car (or not during lockdown).
As car dealerships know that those finance deals are only valid for seven days and the consumer can effectively walk away from the deal at the end when lockdown does lift because the delivery seals the deal, the questions is: how do car dealerships keep car buyers engaged and car sales flowing?
I spoke to another dealer the other day about communicating to customers that have bought cars under lockdown the fact that the offer that was initially given is still the best deal in the marketplace by sending them regular comparison sets?
Dean Lawson (Fury group) said that selling used cars can be daunting, but with the advent of the pandemic, things might change a little, with car buyers being more inclined to rely on and trust the internet a lot more. He suggests going back to basics is what will be required – the more car dealerships go back to basics and the more consumer trust can be earned.
Car dealerships are losing the coveted trade-in
Bobby feels that car dealerships have lost the trade in by simply giving it to them on a silver platter to middlemen. He doesn’t undercut prices out of greed, he prefers to rather be aggressive, transparent, yet give the consumer the best possible price – which means ultimately car dealerships will need to price the car right the first time and quickly – giving the car buyer no reason but to take action or go to the middlemen and see if they can trump his offer and service.
If Mitmak Motors loses the deal it would be purely because the deal didn’t work for both parties.
So if you lose a trade in, you have to blame yourself. You have to be aggressive, and quote the right price from the word go.
Lagging demand, supply & pricing indicators drive the automotive industry backward
We’ve seen that it’s very difficult navigating and implementing new ways of doing things especially in a market that relies on lagging demand, supply & pricing indicators. Not only are car dealerships stocking incorrectly but they are pricing cars using outdated “non-current” data.
Franchise dealerships are under pressure to meet new car sales targets, so used car sales targets take back seat. When in actual fact both departments need to rely on each other to meet combined targets.
According to Dean Lawson (Fury Group), a holistic approach is required. Used and new car dealership managers need to focus on the bigger picture i.e. ensuring car dealerships pay a fair market-related price for a used car so that when it comes to selling sell it, profit margins are achieved in the “deal”.
Stock sourcing opportunities for car dealerships
Car dealerships rely on many stock sourcing channels, including but not limited to, auctions. However in most instances the car dealership trade in is where the margin lies. So how do car dealers get that trade in back? For me, it comes down to a couple of things:
- Transparency in pricing – giving the car buying customer a car valuation based on current retail values. Showing the car buyer how the car dealership calculated the trade in valuation
- Going to the consumer to do an inspection & offer rather than making the consumer come to the car dealership.
Inspections and valuations have been the achilles heel that is losing the car dealership the trade in. Because a lot of car dealerships are now going to the consumer rather than making them come to the car dealership. The traditional way of doing business is based on the old principle of waiting for the trade in to come through the door rather than going out there to fetch it or even sending someone to go and have a look at the car is ending. This as a result of internet transparency and the car buyer wanting more and more convenience.
Dean Lawson (Fury Group) the automotive industry in South Africa is still a little old school with owners, dealer principals being in their 40’s, 50s and 60’s. This at times makes it difficult to have a change in mindset. Not impossible, but difficult, going out to the consumer presents brand new challenges and problems. There may also be a high risk of going out there and buying a stolen vehicle, a cloned vehicle, one may never know, you have to make that calculation in your mind and ask yourself: is the risk worth the reward?
Independent used car dealerships should build good relationships with franchise car dealerships to get good quality in a trade in that does not fit the franchise car dealership profile.
So where are car dealerships now? Dean says: the majority try to bring the old school mentality with some new innovative stuff. Meaning there is a growing need to constantly, readjust the recipe. Although a lot of the car dealerships have moved away from the building relationships, it creates another set of challenges.
There are lots of systems out there that we bid on. If you want to get cars and you have the financial capability. You can get cars, you can get more cars than you can get finance, in my opinion. I really think you can, if you push, Dean continued.
The future mindset of car dealerships
The future mindset of the car dealership would be for the salesman to actually go direct to the consumer. Car dealers can’t wait for the consumer to come to them. When the pandemic is over, people are going to be petrified. According to Dean, there will be a few brave consumers that will be brave enough to come to dealerships but the conservative ones won’t. There is definitely going to be huge mind shift for the motor industry that’s going to happen now, the question is who will serve the customer first?
Dean further elaborates that the car buyer is going to stick with the car dealership that goes the extra mile, the one who makes an effort to go to them.
For a car buyers, trust is everything
Earning trust from the car buyer is everything for a car dealer, it’s the best way of advertising, unlike the old days. People didn’t trust car sales people because they thought they would get ripped off. It’s time car dealerships of today show consumers they have changed the way they do business. For example, you don’t have to be the most expensive or the cheapest when pricing your cars, car dealerships have to price to market, be honest and transparent with the consumer and even show them your retail process – play open cards with the car buyer and that way you earn their trust.
The other aspect is that of building lasting relationships with other car dealerships in order to get the best cars onto your floor for example a franchised car dealership and independent dealer. Everyone wins in the end, the independent dealer gets the car the franchise dealer doesn’t want to put on their used car lots.
Do we as car dealerships need to start thinking about the change now? What is the change when it comes to the trade in?
Build processes and automation for your car dealership
Build mechanisms and processes for your car dealership to accelerate change post lockdown. We as an industry will notice that the consumer is going to want car dealerships in their space one-on-one rather than coming to a showroom and potentially interacting with 10 or 20 people.
So one of the trends to soon come will be to fetch the trade in from the consumer. The car dealerships who choose to stick to their antiquated methods will lose and those that are willing to adapt will win – after all the only constant in life is change.
Bobby (Mitmak Motors) says that as used car dealerships, we need to have a watertight case for every single car deal.
New cars are commodities. One new car is exactly the same as the next new car, but used cars on not commodities, every single used car is different to the next, even if the spec is the same, the mileage is different, the way the cars has been treated is different, and you’ve got a different case to build on that particular car.
Car sales after lockdown
It is difficult to say what life after lockdown may be like in a car dealership, the thing we need to do as a collective automotive industry is to plan; what are we going to do, what new measures, processes, mechanisms and automation do we put in place and how do we make sure the car buyer gets his car in the shortest and most convenient way.
The future is uncertain, one day at a time is unfortunately necessary, literally hour-by hour or even minute-by-minute because the rate of change is not only unpredictable but also rapid. Those car dealerships that provide good service, that have a good reputation and are transparent moving forward will likely survive this uncertainty.
Because our South African economy is under immense pressure. Used car departments in franchised car dealerships need to become a well-oiled machine, especially now that a lot of car buyers are potentially looking to trade down after lockdown, save money, and feed their families.
In the end those car dealerships who run efficient car sales businesses and do the right things by the consumer should win in this market.
