Last Friday the Wall Street Journal released an article featuring how CarMax was seeing a decrease in the selling prices of their used cars. This signaled a cause for concern across the industry. However, this was followed up by a piece in Auto Remarketing on the same day that gave more insight and data in to what is happening at CarMax.
Wall Street Journal:
“A big used-car retailer said on Friday that its average selling prices slipped 1.6% in the fiscal first quarter, a caution flag for a U.S. auto industry that has relied on rising used-vehicle prices to prop up demand for new automobiles.
Virginia-based CarMax Inc. said its average transaction prices in the three months ending May 31 fell to $19,851, down from $20,173 in the same period a year ago. CarMax’s used-vehicle prices cooled in the latter part its fiscal year ending Feb. 28, and the first-quarter data signals the trend is continuing.
If you looked just at this you might think the bottom is falling out of the market. The article goes on to discuss the fact that we will see a rise in used car inventory, possible interest rate increases and other signals that could point to a popping of the used car pricing bubble. But that is not the entire picture at CarMax.
“CarMax announced first-quarter results for the start to its 2016 fiscal year, reporting another record quarter for sales and earnings…And net earnings grew 7.3 percent to $182 million.
…In fact, total used units sales rose by 9.3 percent from 150,528 sold a year ago. This time around, the company sold 164,510 used vehicles in Q1. This represented sales worth $3.3 million, up from $3 million in Q1 fiscal 2015.
So, what is this all telling us?
Buying Smarter and Pricing Efficiently is a Must
While it is true that the average selling price is down, CarMax is still able to increase revenue and volume. From this we can assume that the company is being smarter about putting the right inventory on its lot. They are making sure they are acquiring the right cars that will move, and purchasing them at a lower wholesale price.
By buying smarter and pricing according to market they are able to still grow their business while moving more automobiles at a better margin, even though the average individual vehicle price is down.
What can the industry as a whole take from this?
Get Cars that Will Move and Make Money
Find the right cars:
- Invest in the right inventory that will move in not only your market, but specifically on your property.
- Buy at the optimal value so that you can in turn maintain or grow your GP.
What is the Secret to Success? “Transparency”
The biggest piece to take from CarMax is their ability to create a culture of transparency. By giving the customer the right amount of information about the vehicle they have built trust in their selling process. This trust carries over in to the ability to sell the costs at their margins without having to add additional discounts. And even if you are not as large as CarMax you can also create this same selling environment by building trust in your process. You can create that sense of transparency and value in your vehicle and pricing by providing:
- Third party evidence
- Provide pricing proof points (Price vs Book)
- Providing original OEM specific packages and equipment in your descriptions
- Carfax reporting
- Expert reviews and awards
- Crash test ratings
While this is not all inclusive, it is an example of the data that consumers today rely on to make sure they are getting top value for their purchase. It is not new news that the consumer today is doing volumes of research before ever stepping foot on your lot. By providing them valuable information about the products on your lot up front you are setting up your culture of trust and transparency and setting yourself apart from the market. The transparency experience needs to happen on the lot and it needs to be put in the hands of your salespeople, as they are the ones delivering the message from your dealership to the consumer.
Level the playing field for them. Instill processes and procedures that encompasses the entire lifecycle of automobiles on your lot. From making smarter purchases for your specific dealership, to creating trust with your buyers in how you market your cars, to the tools and messages your sales people use when face to face with your consumers; in today’s car buying experience everything counts. CarMax is an example that when you focus on the entire process you can still grow your business and profit margin even when your average top line sale is lower.
Opportunities of a lifetime don’t come by often, that’s why we call them an “opportunity of a lifetime”, and I recently got one! My opportunity was to join a successful company, INC 500’s fastest-growing software company in Chicago and 3rd fastest growing software company in the nation, and run Product Management. I’m now 2.5 months into the job as Vice President of Product Management for MAX Digital.
In my new role I inherit successful products that have made the company the success that it is. And, as with any existing product, I have a plethora of enhancement requests (customer requests?), technical debt, innovation, competitive differentiators and so much more. Now begins the exciting balancing act of determining just the right mix of all these things. It’s truly a Product Manager’s dream come true!
Will we get it exactly right day one? Probably not, but we’ll start somewhere and continuously improve with our customer’s feedback and enjoy the exciting journey that we are about to embark upon. I invite you to follow me as I take this journey; I will be posting something new next month. In the meantime, I would love to hear your comments and advice – thanks in advance!
Throughout my visits with groups, I continue to see the same dynamic repeat itself when trying to get groups to do more “in-group transfers”. Sourcing inventory internally is a great way to increase retail success while avoiding wholesale loss. I’m not talking about “swapping spit”, or “I’ll trade you my aged over book car for your aged over book car”!!! Nor am I advocating the ole, “let’s keep trading this car in the group and re-starting the clock”.
First, let’s talk about stocking. If a Lincoln store has a 40 day old 2014 CL Class that I’m understocked in over at the Mercedes store, move it! If the Mercedes store has a 2013 Silverado Truck that’s not getting any bites, move it to the store that needs trucks. There’s no reason top selling, most profitable and fast-selling vehicles aren’t moved to the store with the best shot at selling it, especially if they’re aging. Sourcing inventory internally not only makes business sense, but avoids auction fees. I can’t tell you how many times I’ve seen cars sent to auction only to be bought by their sister store in the group!
Second, aging inventory needs a good home. If you’re not getting any hits on a vehicle and you have it priced/marketed correctly, move it! Just because a vehicle comes up on some magazine list as a “Hot Seller”, doesn’t mean your Lexus store is going to be good at selling a domestic truck. Move it to the store that sells trucks!
Third, encourage the behavior!!!!!! Too many times I’m in a group meeting where one UCM doesn’t want to buy/sell cars from/to the other UCM because “it will make that guy look better on the reports!” I don’t blame them. Why not look at the number of times a store sources inventory from another and praise them on their process? Get the UCM’s together often to create a team culture. Buy them pizza, go bowling, serve tabasco soaked peanuts and beer from the back of a pickup during an internal auction (been there done that! Thanks to a group in Alabama!). Do this and maybe next time when they need a Buy-Bid, they’ll call one of their sister stores and not their buddy over at the buy-here-pay-here lot.So I challenge the Directors, Owners, GM’s, UCM’s of groups to build a culture that encourages in-group sourcing of inventory. Work as a group and dominate your market.
So I challenge the Directors, Owners, GM’s, UCM’s of groups to build a culture that encourages in-group sourcing of inventory. Work as a group and dominate your market.
Used car inventory will be more plentiful this spring and summer than in years past. It will be even more important you stock your inventory with the best-selling, most profitable pieces of inventory for your location in order to drive traffic, gross and increase sales and ultimately lead to profitability.
Even the most successful dealers can only stock 50%-60% of their inventory from trades. Filling in the gaps with off-site purchases can be a very risky and expensive task. Making the right decisions is critical to drive profitability.
As you head out this spring and summer, I ask you “think like a baker.”
It’s important that a baker have enough loaves of each kind of bread every day. Too much pumpernickel, he/she has to throw away what does not sell. That waste costs him/her money and in your case would be a wholesale loss. Not enough rye and his customers will go someplace else to buy. One thing is certain; a baker does not stock his shelves with anything but baked goods. Franchise car dealers are the same way. Your brand is who you are. Leverage the marketing dollars of the manufacturer and be sure you stock the inventory that people think and expect you to have.
A baker does not carry fish or fruit in his display case. Why should you? Be sure your inventory is stocked with the cars, trucks and SUV’s people associate you with. Ensure you appropriate days’ supply of your best sellers to avoid wholesale loss. Used car managers time is extremely valuable today. Before you head out and spend your money on inventory you have little experience with, no brand support for, both from an advertising and service perspective, be sure your brand’s top sellers based on your sales data are properly stocked, merchandised and priced. Dominate that market first and then consider stepping out and purchasing market performers.
For more information on how to ensure you are stocking the right inventory this busy selling season, contact myself or one of my teammates here at MAXDigital, parent company of FirstLook, for more details.