So much of automotive is filled with data points and rear-facing rumination about what happened. Last week on Clubhouse in the All Things Used Cars room, led by ASOTU Contributor and Hansel Auto Group Executive GM David Long, data was met with actionable solutions that can support and grow any used car operation. The conversation centered around the projected shift in used car pricing in 2022 as new vehicle supply looks to level out. However, despite a growing hope in new vehicle stock rising, there were insights and data that led the room and participants to a conclusion many in the industry know all too well: inventory wins. Below are some of the key takeaways, data points, and action steps we pulled from the conversation.Â
David Long opened the conversation with a reminder that "remember everybody is fighting their best fight" before pulling common language from the book "Who Moved My Cheese." Long encouraged attendees to ask themselves if they are "scratch and scurry" or "hem and haw." His claim is that some in the automotive community have become complacent and should be "smelling the cheese every day," staying ready for what is coming.Â
John Ellis, Enterprise Automotive Strategist for Cox Automotive, who has been an operator in the business for 17 years was the primary subject matter expert for the day and had data and insights that captivated an audience of over 200. Ellis said you cannot start with used cars without talking about new cars. He projected the second half of the year should be strong for new cars. The day's supply of new cars was 80 in 2019, and is currently at just under 40 day supply. For reference, 2021 started at 60 and 2020 at just under 80. This is just one point on the matrix of data and insights dealers have to become more familiar with to not only succeed but thrive, in the current market.Â
Here are some of the key moments as they occurred:
Continuing, Ellis concluded consumer interest in older cars has dropped amid the chip shortage driven price increase across the market.
Credit card debt is high, inflation is rising, and 61% of Americans are living paycheck to paycheck. This has led to a lower market demand as of late and we have seen wholesale prices dipping. With tax returns upcoming, albeit later than normal, some are hopeful the perfect storm of cash on hand and people looking to trade-in or upgrade their current vehicle will lead to increased consumer demand.Â
Big tax returns could be the impending final ingredient in a perfect storm for used car sales.
Data shows most tax buyers are going to be the $20k/$400 a month buyers. With 1.6M cars listed only 1/4 of them are under $22k, which seems to be the spot most tax return purchases pull from. Over half of the total used vehicles listed for sale are currently over $30k. This will continue to create a chasm between buyers and sellers and the access to inventory the buyer needs.
"You can't buy the wrong car cheap enough, but the right car you almost can't overpay for." - David Long
Historically. retail valuation has pulled wholesale along, but the wholesale market tanked back in August due to announcements that new chips and new models were not coming. So as the wholesale holders sold off inventory, that drove the retail market up. These sorts of dynamics may become more normal and important to be mindful of as we learn to adapt to the new normal and the future.‍
Jason Rice, owner of LotPop, chimed in on the retail market in opposition to only viewing the market from a wholesale perspective and relying on valuators like MMR (Manheim Market Report). Typically the wholesale valuators are driven up by OEMs, banks, and rental car companies who can absorb the increase. Rice argued that a retail mindset when buying from a private party or out of the service lane is important to a stocking strategy.
Do we treat EVs differently? With battery warranties only covering 8-10 years and 100K miles, many EVs entering the used market have their most expensive component already outside warranty. This means dealers will need to acquire a battery as part of the reconditioning process. Having a certified battery with 100K miles will be a big part of the success of the reselling process. Additionally, it was noted that changes in the vehicle, like software subscriptions, can massively impact EV valuations.
Diego Vargas, Senior Director of Performance Management with vAuto, was able to provide some solid applications for all of this collected data.
He encouraged a weekly team analysis to be used to keep the whole dealership aware of the market trends. Vargas also asserted you need to have a company-wide strategy of acquisition with a clear process for employing the strategy.
This highlights the need for sources and trade efficiency. Of the people who bought a car, how many of them have cars to sell, and how many are you capturing. Could those be the best vehicles to have right now? How can we set up a process to acquire more of those cars?
David Long offered a summary of Diego’s words of wisdom: "Get your house in order." Knowing how many cars you sold yesterday or last month is obvious, but are we tracking our trade efficiency? Look-to-book? What % are wholesale to Appraisal?Â
Long went on to say that once the team has made the collection of data second nature, it is time to move beyond the stats and numbers into connecting those dots.Â
"Do not give me any more data, give me insights!" -David Long
Vender-Partner-Dealer relationships will be the mechanism for making data-driven insights available quickly, clearly, and continuously.
With the lightning round of market wisdom coming to an end, David and John had a final word of hope to offer those seeking something better than survival in this uncertain market. "The dealer with the best inventory (for them) wins!"
What will bring us through this better than when we started is taking the time to know our best inventory stocking strategies now. It is a process of intersecting multiple data points, because no single data point can tell us what inventory we need. Once the dots are connected the big picture is revealed.Â
As always, if you would like to go back and listen to the entire conversation, you can click here to listen to the replay on Clubhouse.
All Things Used Cars is a weekly collaboration with ASOTU on Fridays at 10a EST/ 7a PST.