The mixing desk: 5 ways to turn used vehicles faster and more profitably

Moshe Schoopachevich had his work cut out for him in early 2014. His dealer group, Reedman-Toll Auto Group, had just expanded to 10 dealerships across seven locations, and the director of used-car operations was charged with integrating the used-car operations of the newly acquired stores. While the task represented an opportunity to improve the group’s inventory processes, there were challenges along the way.

The issues Schoopachevich faced were common to small to midsize dealer groups that have inventory mixtures as complicated as those of big, publicly traded groups but without their vast resources. Individual rooftops within the group, for example, didn’t always communicate well. At Reedman-Toll, a vehicle that might have sold at one store was sometimes stranded for months losing value at another because the rooftops worked autonomously. Additionally, used-car managers often relied too heavily on instincts and habits.

“I had cars with birthdays,” says Schoopachevich. “They’d been here for 360 days or more and they had no value,” because the managers thought they would sell eventually and didn’t closely monitor how much they cost to keep around. Inventory management tools can help, but they require buy-in from employees. They also need to be used correctly, which some managers were resistant to do. 

Being quicker or more precise than modern tools is impossible, Schoopachevich adds. “But managers still wanted to do things their way.”

Schoopachevich is correct about modern software tools, says Jeremy Alicandri, managing director at the Stamford, Conn.-based consulting firm Maryann Keller & Associates. “The latest tools can analyze various datasets about market supply and demand,” he says. “They also provide suggested pricing and predicted time to sell at the VIN level — within $500 accuracy for pricing and five days for selling.”

Though he does not endorse specific tools, Alicandri says today’s inventory tools deliver more accurate appraisals that are often better received by customers — many of whom are doing loads of research. Still, data-driven tools are only tools, he adds. Stores need to see tangible benefits from these solutions and have a strategy to adopt them.

Sharing inventory, centralizing appraisals, taking trades at one location to be sold at another? “This is a great concept, but it’s hard to execute,” Alicandri says. “Each store is focused on its profitability. Unless one store benefits from buying inventory for another store, this won’t occur.”

Today, the average selling time for a vehicle at Reedman-Toll is 25 days. Ninety-day-old vehicles are rare, and Reedman-Toll’s flagship store in Langhorne, Pa., consistently sells around 300 used vehicles a month, up from 185 in 2014. Schoopachevich credits a series of steps for this — primarily harnessing the data but also taking a broader view of the store’s processes. Making this transition to inventory management across an entire group, he adds, requires adhering to some distinct, data-informed strategies.
 

“Moving cars from store to store is huge,” says Darren Militscher, manager of strategic growth at DealerSocket. “Why would a dealership want to take a $2,000 loss on an 85-day-old unit at store A, when they could move it to store B, turn it in 16 days and make $2,200 on it?”

DealerSocket helps set up internal trade desks and regular internal auctions with ground rules about condition and pricing, Militscher says. Using the tools in DealerSocket’s Inventory+ software, every manager can see the “buy” list at other stores.

Key, Militscher says, is not forcing stores to take cars they perceive as unwanted. Rather, it is using the data to convince a used-car manager that a car may perform better at his or her store than at the other location. Showing managers the opportunities of working together as a cohesive group also is key.

“One reason we used Inventory+ was the internal online group auction, which allows dozens of rooftops to share their pre-owned inventory to the whole group,” says Adam Perlow, executive vice president of Island Auto Group. Based in the New York borough of Staten Island, the 25-store group uses Inventory+ to trade across its dealerships. The internal trading allows managers to choose languishing vehicles they know do well at their rooftop. 

“For whatever reason, it didn’t sell at the first store, so now it’ll hopefully find the right home where they’ll turn it and gross,” Perlow says. The selling store can then restock with something that’s a better fit. This saves auction fees and transportation costs versus purchasing inventory from auction. And because the vehicles were reconditioned in-house, their condition is not an issue.

The record is convincing, DealerSocket’s Militscher says. At a 31-store group that uses Inventory+, he notes, 1,120 cars were traded between rooftops in the first eight months of 2019. The cars departing were in inventory an average of 68 days. Stores that picked them up sold them in just 18 days at an average of $1,600 net profit to the overall group.

In the past, dealers knew that a problem existed with used-vehicle appraisals only after the fact, says Daryl Stevenson, director of strategic growth management at DealerSocket. “Usually at month’s end, when suddenly you had a loss because one appraiser overbid every car.”

A central appraisal group, Stevenson says, can hyper-target vehicle pricing with the entire group in mind and act as a backstop to mistakes. Dedicated central appraisers can monitor deals across the group in real time and be expert voices in complex situations.

“It provides real visibility into the stores,” Stevenson says, adding that the monitoring breeds accurate appraisals at individual rooftops.

“There are probably 25 to 30 different Ram pickups,” says Reedman-Toll’s Schoopachevich. “One might be worth $25,000, but another on which everything looks almost the same is worth $35,000.” If an appraiser doesn’t know the details or local trends, he adds, there’s too much room for error. 

Reedman-Toll employs three dedicated appraisers. They can dig into statistical data Inventory+ generates on similar vehicles from hundreds of miles around, as well as look back to prior months for a more precise result.

Centralizing the process adds considerable precision, Stevenson says, but, “There's got to be some flexibility within the stores.” A good system balances the expertise of the central desk with the ability for managers and appraisers to occasionally bump a value by $500 to $750 if circumstances require.

A used-car manager can only know what’s going to sell in 14 days versus 60 by keeping a careful eye on current trends, and reliable data makes all the difference. “You have your instincts,” says Island Auto Group’s Perlow, “but data proves that they can sometimes be wrong.” Data not only informs swaps between stores; it prevents used-car operations from assuming that broader market trends apply in certain situations.

“At our Hyundai store, SUVs and trucks dominate now,” Perlow says, adding that the instinctive thing to do as the new-vehicle market moves toward crossovers is to follow suit on the pre-owned side. 

“But the data says that pre-owned Hyundai sedans are our fastest turners and highest grossers,” Perlow says. In his experience, eschewing the sedans for crossovers would mean slower turns and missed opportunities.

Opportunities like that can be fleeting and unusual. For instance, Island Chrysler-Dodge-Jeep-Ram does well with used BMW X5s and X6s. “They turn very quickly and gross very well, not something you’d expect at the Jeep store,” Perlow says, adding that Island wouldn’t have tried BMWs if not for a suggestion from Inventory+ data.

Reedman-Toll’s Schoopachevich reports similar results. Data alerts, for instance, persuaded him to stock Cadillac ATS sedans in 2018, which turned out to be some of the group’s fastest turning and most profitable cars — selling, on average, in 13 days. “This year, they disappeared,” Schoopachevich says, explaining that the ATS is no longer in the pricing sweet spot and won’t do as well.

“What the internet really did was end haggling,” Schoopachevich says, and data tools are just an extension of the internet. If stores for miles around are retailing the same vehicle for $10,000 to $10,500, then that is the price of that vehicle, he says, and consumers are wise to prices. 

“They look at Kelly Blue Book and Edmunds, too,” he says, adding that data sourced from Inventory+ can tell dealers exactly what price is going to hook those internet customers. If a listing isn’t getting a proper number of clicks, it’s likely priced too high, he adds.

Alicandri of Maryann Keller & Associates says this transparent pricing is a big advantage for consumers, many of whom are increasingly shopping for cars on the internet with a specific price in mind. “These tools are all about providing upfront pricing to consumers based on real-time market demand and supply conditions,” he says. “So by their very nature, they provide pricing transparency. Generally, the tool’s price is the nonnegotiable price on the website.”

Instead of haggling, Schoopachevich tells customers, “It's an Internet-based dealership. Our prices are very competitive. Is that the car you want to buy today?”

DealerSocket’s Militscher is quick to point out that the prices the software sets are not the absolute bottom of the market. They produce a snapshot of market conditions and the store’s history. “The bottom of the market for a vehicle might be $12,000,” he says. “But if you’re selling them in 12 days at $13,900, you don’t need to be the cheapest.”

Like all new pieces of technology, inventory management systems only work if people want to use them and understand how. “Forcing stores [to trade inventory] doesn’t really work,” says DealerSocket’s Militscher. When that happens, used-car managers can sometimes slow-walk vehicles and then say, “You’re the one who gave me that car. I didn’t want it.”

It’s better, he says, to play to the instincts of a manager and demonstrate that the data actually shows better results. “If you get them involved with trading cars, it becomes second nature,” Militscher says. When setting up internal trade desks, he adds, every used-vehicle manager should sign off on an agreed-upon set of rules for internal trading. 

“It gets them involved and it minimizes gray areas that may arise later,” he notes. Once staffers see the data, it typically takes about 90 days before they’re completely on board, and their colleagues usually follow suit.

“One of the best motivators to get people using the data,” says Island Auto Group’s Perlow, “was the general managers seeing a sister store a few blocks down achieving higher grosses and higher volumes, then finding out the GM at that store was using the data.”

For more information, visit DealerSocket.com and Inventory+ or follow us on Twitter, LinkedIn, and Facebook.