What Happened:

Now that we’ve closed the retail automotive books in 2023, let’s take a step back and look at what we learned that will help us grow more efficiently and consistently in 2024.

The first thing that comes to mind for 2024 is the nonsensical behavior of used car valuations. I have worked with dealers of all sizes on market and inventory strategy since 2016 and I have not seen this type of unpredictable behavior in that time. For example, twice in 2023, the used car acquisition values grew at times they historically do not and conversely the values dropped significantly in times that were not seen before. Mistakes might have been made if you weren’t watching that valuation curve weekly.

 

The second thing to notice was the retail transaction price of used inventory for the model year 2020 dropped consistently from 34,000 to 28,000 with a small window of price acceleration at the end of the first quarter and the beginning of the second quarter. That is a typical trend of tax season and the spring bounce. But during these drops in retail price, the used sales pace was steady and up most of the year. That might have put blinders on some Dealers to keep buying to chase sales rate while overall margin was eroding fast. That was because retail price drops were not caused by a lack of demand but a lack of affordability forcing transaction price discounting, hence margin erosion. The economy was taking its toll on dealer profits.

 

The trick was to keep selling and growing the sales rate while monitoring PVR with the understanding that the market was driving down front-end gross. Because of that, volume was the only way to keep departmental gross steady and growing but not for the undisciplined. Unfortunately, too many dealers we spoke to were chasing PVR as an indication of their monthly sales success and held inventory longer than they should. That caused a hamster wheel of further PVR erosion until the bottom fell out and a major correction was required.

 

There is no question 2023 was a tough year for used car departments. That can be seen in the year-end NCM dealer performance report. Used vehicle sold volume was down 6% and PVR was down 23.4%. This was certainly impacted by F&I income being down 8.1% or $1,587.

 

The hard truth is 2024 will be as tough if not tougher. To grow volume and profits you need to focus on the right areas to have the calculated courage you need to execute. Let’s look at a few of those way below.

 

Let’s Look Forward:

Here are a few areas we coach our clients around that can help you avoid 2023 pitfalls and take profitable market share in 2024.

  1. Know the whole market outlook, not just automotive. The automotive industry has changed in significant ways and it’s not the industry of our fathers or grandfathers. Strictly looking at automotive KPIs will not get you to where you want to be any longer. We help our dealers take a macro view of the market and bring that view down to their region and rooftop level to execute in a proactive and prescriptive way.
  2. Know your shoppers and listen to what they are telling you. Dealers must take a weekly and in many cases daily view of their retail strategy partners to determine how they’re performing in the market, what shoppers are asking for and what matches their shopping behavior. We’ve seen dealers misaligned to this metrics and do everything else right but steadily lose market share to competitors in their backyard.
  3. Know the right acquisition strategy that achieves your goals. Buying and selling cars is not as easy as it was during the pandemic and requires a surgical approach. Understanding your acquisition strategy based on your monthly sales goal first, but constantly monitoring your 30-day sales rate keeps the flow of inventory perfectly aligned with retail sales. We have a tool that does that for you automatically and matches market conditions to that forecasted sales goal by Acquistion channel to keep PVR and volume moving in the right direction. It’s not as simple as monitoring a rolling 30-day sales rate anymore.
  4. Know the effects of your retail strategy on sales pace. Having a retail first strategy for your inventory is every dealer’s objective but many dealers we see are having a hard time pulling away from the pandemic processes. Process like buying every car they can, or certifying every car regardless of age, or having a larger pack than normal born from the pandemic, or prioritizing the customer pay service over reconditioning. We’ve had many discussions with our service director and used car manager clients to bring math to that equation and pull emotion out the discussion. Thier is a win-win strategy that works when both departments work together. This one element is critical for your success in 2024 as most dealerships are leaning on fixed operations to help carry a bigger piece of the profit pie.

 

These are just four of many lessons we learned in 2024 and we’d be glad to have a discussion with you about all of them one-on-one. As our good friend Dale Pollak says often, “we have to run to the problems not away from them.” Solving critical issues in a timely fashion is where consistency and profitability live. Unfortunately, we’re finding most leaders in the used car departments of the dealerships we talk with don’t know how to identify much less solve the problem.

 

That is because many used car managers leading today have cut their teeth either a few years before the pandemic or during the pandemic, and going back to the fundamentals before the pandemic is challenging. Having a partner who can help you guide that ship back to processes and efficiencies will be the best success strategy in 2024.

 

The good news is our used car optimization tool and consulting program aligns those historical best practices and processes with new innovated market driving insights that help used car departments be consistently efficient, tight, and profitable. Reach out for a fee consultation HERE.

 

John Ellis CEO & Founder of The Automotive Advisor Team, LLC

Author: John Ellis

Founder & CEO The Automotive Advisor Team, Inc. BEVEveryting, Inc. Double E Consulting, Inc.

LinkedIn page