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  • Louise Khanjian

How To Address Your Vehicle Acquisition Gap

Used vehicle inventories are dwindling across the country as a result of reduced sales and therefore reduced trade-ins, and low repossessions from lease return extensions due to COVID-19. This has created a pent-up demand for used vehicles. (Toljagic, 2020).

But there are strategic changes that every dealership could incorporate to take advantage of all the avenues of acquisition.


Let’s take a look at a hypothetical scenario of an ABC auto group planning their acquisitions, similar to what our Carpraze team sees when we work with new or prospective clients:

  • Strategic Target of 1:1 Used Car to New Car Sales (UC:NC)

  • Projected NC sales next month: 500

  • 30% conversion ratio

  • Average Used Vehicles acquired via all channels – 125

  • Used Vehicle inventory – 120

According to this projection, ABC will be short 255 UC units next month, if they want to continue to meet their 1:1 UC:NC strategic targets.


Calculation:

(New Car Target) – (Used Cars acquired this month)+(Used Vehicles already in Inventory)

=

Shortfall of used vehicles to meet next month's to meet 1:1 target

500 – 125 + 120 = 255

In my years as a Program Manager and Change Management practitioner, I know there are 3 variables you can control in a given time of change: Time, Quality, and Resources (e.g. tools, money, people).

Auto groups who push teams to acquire more, without making changes to timelines or resources available, will see a reduction in the only other variable that can change: quality.


More pressure to acquire, with everything else held equal, puts your organization at risk of lowered acquisition quality.

The desperate drive for more inventory results in a drop in quality that can surface in many ways:

· Poor trade-in valuations, or over-priced appraisals

· Overpriced bidding at auction

· Poorly planned wholesale purchases with little oversight

“All of our aging inventory that is overpriced is in that position because the trade was not brought in right,”


one Operations Manager told our Carpraze team during a qualifying call; “You can see these days the overpayment at auction, or fear-driven decision making on bids. We want to expand our inventory, but we can’t afford to carry any more risky decision-making in the current market!”

So how do auto groups address the acquisition gap, without compromising the quality of their trades?

First, Improve Your Process.

Controlling your appraisal quality, and enforcing a consistent appraisal process for every acquisition is the best way to control acquisition quality, and reduce wholesale bleed later on.

With a conversion ratio of 30%, our sample ABC Auto Group will need to complete an additional 850 appraisals this month to ensure they have sufficient supply (never mind variety) of used vehicles to meet next months’ strategic target of 1:1 UC:NC sales.


Calculation:

Used vehicle shortfall = 255 vehicles.

Conversion ratio = 30%

Vehicles to be appraises = 255/30% = 850 vehicles

More than doubling the appraisals required in order to make quality acquisitions is a hefty goal, but achievable with some well-planned processes and the proper tools.

A streamlined appraisal process will enable your organization to not only complete more appraisals, but utilize more of your workforce to their full capacity. This will help achieve consistent quality and transparent oversight, to reduce ‘knee-jerk’ trade-in valuation behavior that comes with the increased pressure to acquire more.

Basic Components of a Structured Appraisal Process


A streamlined appraisal process would include the following optimizations:

  1. Separate key decision-making points from the appraisal valuation itself in order to minimize bias.

  2. Break down the appraisal process into steps that can be delegated, in order to reduce pressure and reliance on overstretched Sales Managers.

  3. Invest in a small, in-house, centralized team that would facilitate centralized appraisals and other pre-owned operations processes.

  4. Invest in a platform that facilitates communication of appraisal information and wholesaling

  5. Use a system that drives compliance to your business processes (e.g. through approvals and workflow) and minimize the need for ‘process policing’ your sales teams.


The increased efficiencies gained result in returns that cover the cost of a small central team for your organization. See our Strategic Recommendations deck for more details.


Do you need a platform like Carpraze to achieve this improvement? No. But here is what you will avoid by getting an enterprise-level platform that is purpose-built to support your shift towards a streamlined process:

Pains avoided by investing in an enterprise used-car operations platform

  1. The need for a large central team to manage all the moving pieces and manual compliance tracking to your new processes

  2. Weeks (if not months) of investment in designing a workflow and business process that works.

  3. Potentially investing hundreds of thousands into an in-house software that achieves the same efficiency.

  4. Attempted implementations that fail to be adopted by your group due to lack of proper project or change management planning (which Carpraze provides free of charge with every implementation)

Next, Maximize All Acquisition Channels


With a streamlined and workflow-driven appraisal process, a small centralized team can now engage with all the potential acquisition channels for your organization, monitor them, and allow you the flexibility to adjust strategies as you see fit, in an instant.

Our Carpraze team has noticed some auto groups know their exact conversion ratios for trade-ins, but most do not know them for other acquisition channels. It is important to track and measure each, so that you can focus your efforts on the channels with the highest conversions.

Here are four acquisition channels that can be enabled with structured appraisals:

Auctions

A streamlined appraisal process would allow a centralized team to pre-appraise all ‘wish list’ auction vehicle. Sales Managers or purchasers going to auction can now have independently benchmarked values for vehicles to support their bidding behaviour at auction. No more panic-bidding.

You can even utilize your centralized team to make the auction purchases for you, further reducing the dependence on already over-stretched Sales Managers.

Service Drive Through

Service drive-through appraisals are an excellent opportunity to pre-empt trade-ins, and leave your existing customers even happier with a new vehicle.

With a streamlined appraisal process, and foolproof vehicle information capture tool like Carpraze, you can utilize lot attendants or other available resources to kick off the appraisal process the moment the vehicle arrives at the service drive-through. The final trade decision can stay with the Sales Manager via assigned system workflows, but would otherwise reduce the impact on your already busy sales team.

One client told our team that “We’ve implemented a new kiosk to help streamline the customer experience at service drive-through. It asks the customer if they want an appraisal on their vehicles. But the sales team isn’t acting on the requests that are coming through the system; they are getting missed; we need a process to make sure these opportunities don’t fall through the cracks”.

Service Drive through appraisals have the potential to have one of the highest conversion rates from all channels of acquisitions. But a tool is not enough to capture the potential from this channel, you need sound process and workflow to drive the success.

Customer-Led At-Home-Appraisals

complete their own detailed appraisals at home, and have your centralized team provide the appraisal value. With photos, VIN number, and mileage all captured by the customer, leads from customers who go through the appraisal input process result in higher conversion rates.



Join a Buyers Network

Carpraze offers Auto groups who sign up for the Carpraze platform the option of setting up their own Buyer Network. This is a network of other trusted dealerships to whom they offer first pick of their wholesale inventory, at lower fees, before sending anything through auction.

You can join a dealership’s ‘buyer network’ by invitation only; but if you know of a dealership that you frequently purchase wholesale vehicles from, you can ask to see if they are on the Carpraze platform, and if you can join their network. This is an excellent way to quickly gain access to more vehicles at a lower cost.

Summary

  • If you pressure an organization to acquire more, but make no changes to your process, people, or systems, you are going to end up with a decrease in the quality of your acquisitions.

  • If you want to acquire more vehicles, you need to appraise more vehicles.

  • If you want to appraise significantly more vehicles that you are appraising today, you need to change your appraisal process so that it can be scalable, without compromising quality.

  • To make your appraisal process scalable, streamline it, delegate process steps, and centralize the appraisal valuation to separate it from the final decision-maker.

  • When you have a streamlined appraisal process, it will be much easier for you to take full advantage of all channels of acquisitions.

  • Some acquisition channels to consider tracking and supporting with a streamlined appraisal process include, auction purchases, service drive-through, customer-driven appraisals, and the Carpraze Buyers Network.

Our Carpraze team can help you streamline your appraisal process, and enable all your acquisition channels so that you can get the most of your organization. Reach out to our team for more information, we’d love to hear from you.

Contact us.

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