The correlation between appraisals and selling more cars | Toronto Auto Consulting

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The correlation between appraisals and selling more cars (new or used)

Jon Toker January 25, 2018 0 Comment
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What does appraising more cars have to do with selling more cars? At the end of the day, unless that customer is buying a car you are not making money. Therefore why should you waste time with these appraisals, unless the customer is ready to buy and negotiate? Appraising is a long process and from time to time it can cause you to lose a deal. When cautious managers see these appraisals that aren’t worth the money they tell the customer that; “They are better off selling their car (Kijiji) privately and walking the customers. Then sales managers tell them; “He is not ready to buy a car anyways, he is wasting our time. Let him go get more educated. Nobody is going to give him that money as that customer is ridiculous.” If you are in the business more than a year, well then you have heard them all. This old-school approach causes dealerships to lose sales due to lack of customer service.

Let’s ask ourselves what do appraisals have to do with customer service? A lot, as we are in the industry of serving customers. This means that we need to provide them some sort of service to be able to deserve their business (make some money off them). If dealership A is not providing the service and convenience I need, I will be giving my service to the next dealership that provides this service. Therefore, putting a car on the lot and investing lots of money on advertising or building is really nothing to do with providing a service. Remember people buy the value as well as the service. They can go to 20 other dealerships but why should they choose you? The answer is actually quite simple; service and convenience. It takes an average dealership forty-five days to retail a used car if they have embraced the velocity principle. Think logically, how long will it take an ordinary person to sell their car on Kijiji? Our main problem is, we don’t tell our customers that it will take them more than 2 months to sell their car privately. When we serve numbers we don’t explain to them where this number has come from. Our intelligent sales staff is not trained to explain the tax benefit and convenience. In addition, we don’t even want to appraise cars, which is a major problem. Due to the lazy nature of the salesperson, they refuse to offer an appraisal, because they are scared to lose the sale. They don’t know that it is actually easier to sell a car when you buy your customers car first.

Typically, used car managers always complain about not being able to find products to sell. They say auctions are ridiculous and these used car dealers are crazy to pay that much money on these cars. Meanwhile, when you see an appraisal coming from the front door, they get so excited to steal them. What happens when they try to steal? A car deal can be lost, or diminished gross profit on a new car deal, which will upset customers and upset the salesman. Why would I want to appraise my customer’s car as a salesman since my used car manager is going to low ball the trade? This gets you into a catch22 situation. Used car managers need more cars to make money, but a salesman refuses to appraise them because he is scared that the manager is going to lowball the trade. The salesman is actually advising customers to sell it on Kijiji because he doesn’t want to deal with this particular situation. Don’t forget the salesman is on straight commission, thus he needs to sell that car right away. Overall, he can’t risk the deal blown by a used car manager. Why can’t we pay the money and explain it properly and therefore we win the trade and sell the car? What’s wrong with that?

Let’s talk about an average dealership that sells fifty cars a month and sees two hundred customers. This average dealership appraises less than 30% of the cars and wins quarter (25%) of it. It generates an average of $100,000 GP per month. The owner then decides he needs to make more money because the service is no longer at 100% absorption and he is not making the net profit he used to make before. This dealership sells thirty new cars and twenty used. The average money spent on recon is $1200/car. How can this owner increase his net profit without spending any more money on advertising? Sure, he can go spend $10,000/month on Facebook campaigns etc (which I am a big supporter of). Essentially, it is very simple math here; if this dealership starts appraising 50% of the cars that belong to those 200 ups and win half of the trades, what would happen? 200 * 0.5 = 100 appraisals/month and let’s win half of it by explaining better. Getting a sales staff on board and stepping up on trades is the way to go. Now we have fifty trades won for the month. We used to sell fifty cars a month by appraising 60 (200 * 0.3 = 60) and winning 15 (60*.25 = 15). Technically speaking when you take someone’s trade they will take the car in return. Now, how many cars could we sell potentially? About thirty-five? (50-15=35). We can potentially sell thirty-five more units a month by appraising more cars. Remember we make $2000/copy thus we have an additional $70,000 for the month in GP. What is going to happen to those extra 35 units we have taken in trade? Let’s say half of them are not retail-able; 35/2 = 17? You can recon seventeen more cars at $1200/car. That’s $20,400 (at 60% $12,240 GP for service) more for the service department. Let’s turn around and sell those seventeen extra units at $2000/car as that is an extra $34,000 in GP.

My intention was to be concise with showing you the importance of the trades. The goal is to win more trades, sell more cars and therefore make more money. Then step up on the trades, encourage sales staff to appraise more. You must let the sales staff trust you with your values. In addition, use your inventory management tools efficiently. Used car managers are happy to go meet your customers and explain the valuation. At the end of the day, it is important to help your sales staff. I guarantee you that you will be making more than last year. It is important to check your ‘Looktobook’ report and see your metrics since the cost to market means good ratios. Overall, if you want us to implement an appraisal process for you, contact us today and Toronto Auto Consulting will make it happen.

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