A couple of years ago on Club House, I commented about dealers pushing the envelope by selling new cars for thousands and thousands of dollars over MSRP: YOU ARE MORTGAGING YOUR FUTURE. That was NOT received well. The justification for why they are doing it was shared, and some fired back at me pretty hard. Things like: 'We have our customers signing off on market adjustments....' 'We have no idea when we will get the opportunity to get more allocation..' Yes. Dealers had customers sign off on the 'Fair Market Adjustments.' And at the moment, the consumer is typically okay with paying the premium. But what happens when the 'new' wears off?
What happens when that not-so-new car they paid an obscene amount of dollars for over MSRP becomes a thing of their past, and they are ready for a new future? When their itch to trade comes again in 30-36 months? When the customer is upside down and worse than they would have been before we started making these 'market adjustments'? Do we pull their deal jacket and slap the 'acknowledgment' in front of them that they signed off on, stating they understood they were paying well above the sticker price of the vehicle? Are customers gonna say, 'Oh, that's right. I completely forgot that I agreed to pay $7500 over sticker?' 'Or I agreed to pay for over inflated price for wax and special air in the tires?' Let's not fool ourselves. The answer is NO. We just might hear something like: 'You are the professional; you put me into this, so what are you gonna do to get me out of it??!!??!!'
That all said, what are some things that might be in harm's way now? How much of that 'Adjusted Market Value' are you giving back three years later?
Customer is so upset that they now stop using your service department. Out of spite, drive 25 miles the opposite direction to take their service needs to?
Loyalty to you goes away and they utilize a progressive dealer that is leveraging mobile at home/work service to be handled since you don't?
They tell the world a very skewed version of what really happened and why they are so far upside down?
Any referrals they did have you lose on?
Competing OEMs have better rebates, and can they get them out of the mess?
Overall, you simply lose the customer and any possible residual from referrals and additional vehicles they need? You can replace the vehicles on your lot, but you can never replace the customer you already had paid for to get in your dealership!!!
All of the loose justification of why it was ok to charge obscene dollars over MSRP led me to share my thoughts on how we will continue to help dealers improve their future with high returns in the now, and for lack of better terms, taxing yourself hard in the future.
I get it. In the moment of time that we were in, and with the overall condition of our industry, supply was short and demand was high. Vehicles deserved to bring a premium price. Prior to the 'shortage,' we sold new vehicles (in general) to obtain market share and drive trade-ins. To build strong performing and diverse portfolios with our lenders. To continually build a base of clients within our Service Department. To drive more profitability in our Finance and Insurance departments. To find more opportunities with aftermarket options and so much more.
That is why I am screaming to all that would listen: 'Premium dollars are deserved but gouging past a fair premium dollar ($5,000 - $7500 - $10,000+) was not in your best interest for the long game'.
If we aren't strategic with our present moves, we will paint a very dark future. Take a look at the trend chart screenshot below. You will see on 2 of the largest 3rd party sites out there that New Car Inventory has NOT slowed down in production, and dealerships are becoming overstocked in relation to how they sell in their stores, within their markets, and to the capabilities of their staff. Keep in mind that this is only a small sample of what is out there because not everyone uses 3rd party sites to advertise their New Car Inventory!
So here we are. Now what?????
Rebates are starting to come back around. Used Car Market values are as unstable. The shopper index is almost as low as it was at the beginning of the pandemic. Days to retail turn inventory is climbing (screenshot below). The Fed is giving us almost ZERO relief with Prime. I recently read in an article from The Wall Street Journal that they published at the beginning of August 2024 that forecasts prime is projected to go down.....in March of 2025. (see screenshot below). That's a stretch away from the NOW, and we are here at the PRESENT TIME.
In the now. In the present. Let's change the narrative for our future. The acquisition is a challenge. Finding that perfect 4, 5, 6 year old piece of merchandise is a challenge. Fighting the negative equity is a challenge. A challenge that we created. Aging inventory and becoming overstocked in our new and used car departments.
Consider this. Give yourself the opportunity to take what you are getting for opportunities and reposition your stance to help customers first and contribute to fixing a challenge. Customer retention, acquisition in the now, and acquisition in the future?
Preparing your sales staff. This includes your managers. Stop living in the past 3.5 years and start realizing that we don't have droves of customers waiting for another customer to say no to a preowned vehicle they want.....so they can swoop in and pay over the market. Prepare your staff to get back to the basic fundamentals of understanding where a customer is at in the process. Provide the customers with educated and professional service. Fulfilling their wants and needs. The dealerships are full of software solutions to help the store be more efficient. But do your staff members have the skill set to not make the complexity of the tools provided, carry over to making the buying experience complex?
Managing your late model inventory in the preowned department to do what it is really designed to do. Create market share. Making that inventory something a person could trade in their 4, 5, 6 year old vehicle to upgrade and be positioned better for their future. In turn, you get another shot later on down the road to earn their business. Customers, as a whole, truly know our industry is a 'for-profit' business. They just want to be treated fairly. You don't have to make your whole mortgage payment for each customer. But earn their business and referral business for a lifetime.
When was the last time you did a lease? Yes. The residual may be less attractive. Yes. The rate or money factor may be tacky and out of line. And YES....if you sharpen up on your leasing in the New Car Department, you will fix a ton of problems in the NOW MOMENT, along with positioning your future to be strong with retention and acquisition with the following:
A guaranteed trade-in value for the consumer. Positioning them to NOT have negative equity when it is time to trade?
If positioned properly for them, a vehicle can have trouble-free service for three years. No maintenance was paid for them out of pocket. All they have to do is make their monthly payment, pay for their auto insurance, and put gas in it.
Giving you a group of people every 3-4 years the opportunity to receive your stellar experience from your Service Department. Which in turn helps solidify retention and dealership loyalty.
Also giving you a group of inventory to be returned right back to your used car department every 3-4 years.
What if you understood how your market and your store with your staff sold preowned class, makes, models, years, price ranges, and odometer of inventory? In more of a 'what is going on right NOW in MY MARKET-MY BACKYARD.' Should we keep that information in front of you at all times to backfill your new car orders with that information? Giving you a chance to set up another group of inventory to come back into your preowned department each and every month? Vehicles that you know can be sold as preowned. (screenshot below)
Doesn't that help solve a ton of problems? Overstocked New Cars. Acquisition of more used car inventory. Giving your customers peace of mind, knowing that they won't be upside down anymore. And finally, getting you and your customer off the hamster wheel of brain damage!!
Happy Selling!
For more information or a free analysis using your data, visit www.lotwalk.com.
-Chris Keene
CBO
Lotpop Inc.
ckeene@lotpop
Comments