- Feb 14, 2020
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Getting Good Inventory
Dealer inventory sourcing has become the big topic and challenge for most small-medium sized used car dealers. For the past few years, family-owned and operated dealers have experienced a dramatic shift in their ability to acquire the best-selling, highest quality vehicles at a profitable price. A recent dealer survey shows nearly 75% of dealers say it was more difficult to source the inventory they wanted in 2019 than the year before. The underlying cause? As industry "goliaths" like Carmax, Carvana, AutoNation, Vroom and others battle for a larger share of quality cars to feed their aggressive growth plans, they have essentially "boxed out" smaller dealers by bidding up auction prices and sourcing more of their vehicles directly from private sellers. One case in point: vehicles purchased from customers was up 231% year-over-year 2019 at Carvana, the newest online automotive retail disruptor.
The Battle Lines
With their deep pockets and high-volume-high-margin, tech-savvy retail models, the giants have pretty much taken over and "bullied" smaller dealers at auctions the past few years. The auctions themselves are doing a good job with technology and convenience for all dealers, big and small, but prices on the best cars remain high and buyer fees are noticeably higher too thanks in part to the giants. In 2019, a new two-front strategy seems to have emerged as the goliaths shifted their attention to dominating the next relatively untapped inventory source – the 14 million private seller cars sold annually. It is obvious from the barrage of TV ads, strategic partnerships and the latest sourcing statistics that Carvana, Carmax and AutoNation are now duking it out in America’s driveways, and online platforms. Carvana recently teamed up with the largest online used vehicle marketplace, CarGurus to get first crack at their private seller Instant Offers program. Of course, Carmax (recently took $50 million stake in Edmunds.com) and AutoNation (new advertising campaign targeting Instant Offers) have already launched counter strikes to stay in the fight, so like the auction battleground, independent dealers should expect to see the pillaging of private party sourcing get worse too. The only winners from the current sourcing battle could be the goliaths, and that typically leads industries in the wrong direction with a handful of giants dictating prices and product.
Realistically, dealers will continue to struggle if they choose to go toe-to-toe against the goliaths on either front, and they can't choose to simply sit this one out. Survival will come from innovating, getting creative, forming new alliances and trying new things. What are other dealers doing to combat the giants and reclaim access to their share of quality vehicles? Many are turning to sourcing areas where the goliaths are not paying attention.
Secret Weapon for Independent Dealers
Two old sayings always hold true: "He who has the cars, wins the game," and "You don’t have to own it to sell it and make money.”
One of the growing trends in dealer inventory sourcing is through a non-traditional channel called “retail consignment.” Dealerships that offer a professional consignment program for their customers experience the following four primary benefits:
Free Inventory
This seems too good to be true, but it is real - consignment inventory involves no capital investment, no floorplan cost, and no reconditioning or repair costs. Dealers control the eligibility criteria for which vehicles can be enrolled in their consignment program and the criteria can match owned-inventory to maintain consistency and brand. Through effective promoting and messaging, many consignment dealers receive high quality, one-owner, low mileage, hard to find, high-end, and best-seller models with consignment. How is that the case? Because they gain access to the private sellers that refuse to accept low ball offers for their high quality vehicle from one of the giants or local non-consignment dealerships.
Good Margins
There seems to be a big myth among non-consignment traditional dealers that you can’t make money with consignment or if you do it is not enough to offset liability or hassles. This has been debunked. Commission fees, cross-selling opportunities and cost savings (holding costs, floorplan costs, market risk, transportation costs, reconditioning costs) generate profit margins per unit equal to or better than those of owned inventory. Unlike owned inventory, dealers never lose money on the sale of a consignment vehicle. Just ask one.
Faster Turn Rate
Most dealers that offer consignment have developed a unique retail pricing strategy for their consignment inventory that is based on creating a "triple-win" for the seller, buyer and themselves. Consignment dealerships tend to have higher overall buyer traffic to their website and dealership and have a faster overall turn rate, including their owned-inventory.
More Customers
Two customers per consigned vehicle – Seller and Buyer. Doubles your repeat and referral business from more customers. Offering consignment also builds happy and loyal long term customer relationships. People want to do business with companies that provide more options for meeting their needs. Your customers have unique needs on both sides of vehicle ownership, as buyers and sellers, so, why not cater to those needs and become their trusted go-to dealer for all of their vehicle needs? It really does work.
Learn More
We encourage all used vehicle dealers to explore the retail consignment option starting with a visit to Retail My Ride where they will find 2,413 dealers in 48 states that are proving consignment is a viable, profitable model and a deep, untapped inventory source.
By example, one dealer group that has emerged as a leader in automotive retail consignment is Carlotz. In 2011, three Harvard business grads launched, “The Consignment Store for Cars.” They currently own and operate 8 dealership locations that are 100% inventory sourced by consignment, and they are expanding rapidly with more locations. Ironically, some refer to Carlotz as the 'Carmax of Consignment'.
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