Troy Duhon has turned his sellers into "an army of buyers."
The dealer principal of Premier Automotive Group said his salespeople are getting spiffs of $200 to $400 for acquiring used cars and trucks off the street, namely through social media sites such as Facebook.
It's been effective.
With customer demand high but quality used vehicles increasingly difficult to come by, dealers have been deploying a variety of strategies to acquire product. Here are some.
"I had one particular salesperson last month buy 10 off the street," Duhon said. "And I made over $40,000 on those 10 vehicles."
Duhon, whose group has 24 franchised stores across California, Kansas, Louisiana, Missouri and Texas, said the buying spree has averaged about 20 off-the-street vehicles per store.
"I've been doing it for about a year," he said. "And it's the smartest thing I've done in 20 years."
Such efforts have become more crucial than ever amid an overall shortage of sale-ready used vehicles coupled with unrelenting demand from customers.
With wholesale prices climbing to record highs week after week, dealers have become especially innovative in how they land quality used inventory to meet demand and preserve margins — although most have been extraordinarily profitable in this unprecedented market.
The need for inventory has become so acute that it has forced some dealers, such as DeNooyer Automotive Family in Michigan, to make difficult decisions.
Managing Partner Todd DeNooyer said the group has had to prioritize local customers, in many cases requiring out-of-market customers to have a trade-in vehicle in order to buy a car or truck.
"It's kind of a tough decision to make as a dealer because you always want every sale you can, but you have to take a step back and realize that I want to sell to somebody that's going to continue to do business with me over time," DeNooyer said.
Meanwhile, the group is scouring its lease portfolio and reaching out to customers earlier than it normally would to see if they want to end their leases early. It's checking its service department list to see whether any customers are looking to upgrade.
DeNooyer's Ford store typically carries 65 to 70 new vehicles. It currently has 15. It's down to 32 used vehicles, compared with a typical stock of 45 to 50.
It's a similar situation at Great Lakes Auto Network in Ohio. President Joey Huang said the group would typically stock about 1,000 used vehicles across its five stores, but it currently has about 750.
Like DeNooyer Automotive, his group is working harder on its lease returns and is going back further in its customer database.
"Where before you're probably working your database six months, maybe eight months out from lease termination, we're working all the way back to 24 months," Huang said.
Huang said the group also is now carrying more vehicles with 100,000-plus miles than it ever did before.
Cox Automotive Chief Economist Jonathan Smoke said he has seen "tremendous growth" in street purchases and instant cash offers.
Through June 6, Kelley Blue Book cash offers were up 41 percent over the same period in 2020.
At the same time, some growth in fixed operations is giving dealers an opportunity to go after vehicles in service lanes, Smoke said. And there has been "an enormous shift" in dealers purchasing off-lease vehicles when they're turned in.
"And that's giving them options to retail, but also to take advantage of what's happened with pricing because we've had about five weeks in a row where the average wholesale price was actually higher than the average retail price," Smoke said.
The Manheim Used Vehicle Value Index was up 48 percent year over year in May, hitting a record level. Total used-vehicle sales were up 3 percent in the same period.
According to Manheim, used retail supply was at 38 days at the end of May; the typical supply is 44 days. Wholesale supply stood at 19 days at the end of last month; the normal level is 23 days.
Used vehicles have been spending fewer days on the market, according to CarGurus' Vehicle Availability Index. A vehicle spent 55 days on the market in May, down 8 percent from the month before. Vehicles moved faster even as CarGurus saw a 4.3 percent increase in overall used inventory from May 2020.
"Used average days on market continues to decline even with that slight improvement in inventory levels, which really shows that strength in demand for used vehicles currently," said Kevin Roberts, CarGurus' director of industry insights and analytics.
While prices continue to climb, there are signs of some relief. Through June 6, wholesale prices were up 39 percent, while used retail prices were up 20 percent from a year earlier, according to J.D. Power.
But the rate of wholesale price growth is slowing, noted David Paris, the company's senior manager of market insights. Over a three-week period through June 6, wholesale prices were up by an average of 0.4 percent per week. In the 12 weeks before that period, prices were "exploding" by an average of 2.2 percent each week, Paris said. "I think we are nearing the top of the wholesale price market," he said.
Paris cautioned, however, that prices were likely to remain strong for the foreseeable future, especially as new vehicles remain in short supply because of a scarcity of semiconductor microchips.
"I don't think personally we're going to see used prices fall off the face of the planet," he said. "When they do start to come down, it's going to be a gradual move downward as new-vehicle production gradually comes back on."
In the meantime, dealers will continue to get crafty with how they land product. Marc Schumacher, used vehicle director at Fitzgerald Auto Mall in Maryland, said the group is paying its salespeople for successfully getting trade-ins.
"If we buy a car, we're going to pay them extra," Schumacher said. "So it behooves them to try to set an appointment to get the people to come in."
And lease returns remain a big advantage for franchised dealers. Brian Finegan, general manager of Clovis Chrysler-Dodge-Jeep-Ram in California, said he's seeing more leases come back.
"The way that the market has gone up in value, a lot of folks are finding equity in their trades that they didn't really think they would have had when they leased it three years ago," he said.
The dealership normally takes in about 90 used vehicles per month, whether retail or wholesale. Around 20 percent of those vehicles are selling before they've even been through his service department. That's because, Finegan said, "people are clamoring to find good, used cars."
Jackie Charniga contributed to this report.
Send us a letter
Have an opinion about this story? Click here to submit a Letter to the Editor, and we may publish it in print.
