Data helps solve pre-owned sales puzzle

For years, Kenwood Dealer Group treated used-vehicle sales as an afterthought to its easier-to-move new product. But the Ohio dealership group's script has flipped.

"Now, I feel like the easy one to do is used and the hard one is new," said Steve Reichert, president of the 14-store group outside Cincinnati.

That's because data about the used-vehicle market is more abundant than ever and has become an integral part of solving the pre-owned puzzle for retailers. "We're trying to get to a culture where it's increasingly part of the daily regimen," Reichert said.

Kenwood is among a multitude of dealership groups using the expansion of data and the corresponding rollout of software tools to get more on top of the used-vehicle game. For many retailers, the sharpened focus on used and the adoption of data-crunching tools were born out of the Great Recession, when new-vehicle sales fell off a cliff.

Some of the country's biggest retailers have centralized used-vehicle operations, and many franchised dealership groups have launched used- only enterprises, with Sonic Automotive Inc.'s EchoPark chain and AutoNation Inc.'s AutoNation USA stores as prominent examples. Meanwhile, auction companies have introduced new tools and are sharing richer details about the wholesale market, while third-party vendors continue to roll out and refine products to better assist dealerships with strengthening their used-vehicle playbook.

Kenwood took its first step toward modernizing its used-vehicle operation in 2011, when it began using Cox Automotive's vAuto suite of inventory-management software. Since then, Kenwood has moved on to custom software that takes information from vAuto and reshapes it to be more practical for the way Reichert wants to view information on vehicles that have been purchased, inventory performance and pricing. He had the software specially developed by a local programmer.

In the wake of that shift, Kenwood's used-vehicle sales have grown. The group sold 12,078 used vehicles through the first 10 months of 2018, slightly more than its new-vehicle sales for the same period, to achieve a used-to-new sales ratio that's just better than 1-to-1.

Walser Automotive Group in Minnesota now uses a centralized team that sets used-vehicle pricing for its stores. Prices are based on a combination of vAuto information and the dealership group's own forward-looking metrics, based on Web analytics, CEO Andrew Walser said. The group's move to a centralized approach is possible thanks to the wealth of data used-vehicle departments now have at their fingertips. "People are sweating the details on price in a very objective way," Walser said.

Walser Automotive sold 18,131 used vehicles in 2017 and is at a used-to-new sales ratio this year that's just better than 1-to-1, Walser said.

Many dealers have been influenced by observing how some big retailers, such as Sonic and CarMax, have been on the forefront of data analytics — capturing information daily and using key bits to drive their used-vehicle decision-making.

Data and software tools have made used-vehicle giant CarMax more nimble.

"CarMax compiles a vast amount of data every year through the different areas of our operations, including our retail and auction businesses," the company said in a statement. In its 2018 fiscal year, CarMax appraised 2.2 million vehicles in its stores and purchased 1.1 million at its auctions and stores.

"CarMax's size and the strength of our proprietary algorithms drive our inventory management and pricing decisions," the company said. "This allows us to quickly adjust our inventory in real time to align with customer demands, wants and needs in each of our stores nationwide."

Many dealers credit vAuto and its creator, Dale Pollak, an executive vice president at Cox, with helping to usher in the digital method of used-car management about a decade ago. Now, Pollak says, that revolution is poised for another shift, thanks mainly to the vast amount of information in the used-vehicle market.

With more vehicle information and pricing transparency for buyers and sellers, more efficiency in the space has followed, Pollak said. And that leads to margin compression. Pollak is now rethinking his oft-preached strategy of "velocity management," which instructs dealers that calendar time matters and dealerships should sell cars quickly.

"But at some point, when margins continue to decline, you can't turn inventory fast enough to compensate for it," Pollak said. While the velocity theory is not wrong, he said, "The way we measure time is flawed."

Pollak and Cox now are rolling out software called Profit Time, which is meant to transcend traditional calendar time by assigning vehicles scores of bronze, silver, gold and platinum, based on expected profitability vs. how long they've been on the lot. The concept of "aged inventory" should be replaced by "distressed inventory," said Pollak, and that distress could happen on day one or day 60.

In addition to data-driven pricing and inventory management, retailers are looking at logistics.

In the summer, Ken Garff Automotive Group, a Salt Lake City retailer with 54 stores, began to home in on using data to achieve a leaner supply chain. Dedicated staffers are looking at items such as transportation costs and fees charged by consigners and auctions, said Brett Parham, national used-car director at Ken Garff.

Field personnel don't have time to mull ways to save money such as switching to a different transport company.

"Margin compression is forcing dealers to become more efficient in the whole purchasing process," Parham said.

Ken Garff sold 41,325 used vehicles last year, at a ratio of .59 used vehicles for each new vehicle sold. The group's used-to-new ratio is up to .65-to-1 this year so far, and Parham is pushing to get to at least .71-to-1.

Greater connectivity also has prompted dealers to look beyond their local markets.

"It's no longer just, 'Hey, we're going to sell cars in a 50-mile radius of our dealership,' " said Dave Katarski, COO of Feldman Automotive Group in Michigan. Some shoppers are in the market for a very specific vehicle. In plumbing the vast reaches of the Internet, the shopping nets they cast can be hundreds or thousands of miles wide. For instance, Katarski said, the group sold a truck to a buyer in Spokane, Wash., in September.

Feldman wants to expand used-vehicle sales in part through its 1 800 PreOwned venture, the group's answer to competition from retailers such as CarMax and Carvana. Katarski noted those digital-focused retailers' lack of many overhead costs. They're not obligated to build large, extravagant facilities, for example, and can centralize inventory. Feldman opened its first 1 800 PreOwned store in Waterford, Mich., in June 2017. It's opening a second location in Livonia, Mich., soon, which will give the group 10 stores in all. The group's sales are just shy of a 1-to-1 used-to-new ratio, Katarski said, but it's trying to hit that threshold within two years.

Feldman also uses vAuto to monitor inventory and supplements it with Google Analytics to monitor which vehicles are getting good Web traffic. "There's an endless amount of data at our hands," Katarski said. "The key to it is knowing that the used-car business is changing. It's not my dad's used-car business."

Even so, dealership executives such as Katarski stress that there is still value in having on-the-ground talent at the retail lot. Andrew Walser cautions that used-vehicle sales management still comes down to about half science and half art. "Tools such as vAuto have made the job of buyers and retailers much more efficient," Walser said. "But the trap I think a lot of people fall into, though, is in buying cars, regardless of what tool you have — there's still art to it."

The science is the hard data. The art is understanding the nuances within the data, Walser said.

Take, for example, a vehicle with the rare option of a woodgrain steering wheel vs. a more typical leather-wrapped one. The data may show that the woodgrain option adds about $500 to the vehicle's value, Walser said. But a seasoned buyer may know that the woodgrain wheel combined with a particular color pushes the value even further.

"No system gets that granular," Walser said.