How efficient is your used-car department?

That is a deceptively simple question.  Having a firm understanding of the elements that go into the concept of efficiency within a used-car department is vitally important.  The better you understand the elements involved in efficiency, the better positioned you will be to correct inefficiencies – and to be more profitable!  Here is a list of areas that need to be running at maximum efficiency in order to maximize your profit:

  • Trade appraisal
  • Acquisition
  • Reconditioning
  • Marketing and advertising
  • Sales process
    • Traffic measurement – floor, email and phone
    • Showroom – sales, follow up and delivery
    • Finance and insurance department
  • Training – initial and continuing
  • E-commerce
  • Inventory management

So, how efficient is your used-car department in those eight categories?  If you are like most dealerships, several of the above categories represent opportunities to become more efficient.   Acting on those opportunities requires a lot of work – a well thought out plan, quality people and very good processes.  This takes time, resources, discipline and support.  I can also say it is well worth the effort – not only from the used-car department perspective, but from the perspective of the dealership as a whole.  The used-car department is the fuel that drives a new-car franchise store.

Although all the eight categories I mentioned above are important, for the rest of this article I want to dive deeper into one category that I believe is a key factor in creating more gross profit in your used-car department, and also reducing your expenses.  The category is advertising and marketing.

I’m sure that everyone would agree that the internet has changed our business, and that it will continue to change and evolve our business.  To illustrate the evolving nature of used-car sales, try to remember back when we first started to advertise vehicles online.  For the majority of vehicles being advertised online, under the price column, what did it say?  “Call for pricing”. 

 I know it seems strange to think about that now, but we all know it was the way things were done (heck, there are still dealers today advertising “call for pricing”).  So, why did that evolution happen?  Did dealers randomly decide to become more customer friendly?  Or did the market reward those who chose to post prices online with more business than their competitors?  The answer is obvious.  I am a firm believer that the market will always push for the creation of an efficient environment. 

So, great – you start advertising the selling price of your vehicles online – does that make you efficient in the marketing and advertising category?   If only it were that easy.   Remember, the market continues to evolve.   There is more work to be done.

I am going to make a bold statement here:  the goal of your advertising and marketing plan should not be to create leads.   Let me repeat that – the goal of your advertising and marketing plan should not be to create leads.  Creating apparent leads is the goal of third-party advertisers and website providers. 

That is, of course, how they justify the monthly bill they send you.  The favorite line of third-party advertisers and website providers goes something like this: “our job is to get you the leads; it’s your job to close them.”  Sound familiar?  Getting leads is easy.  What the goal for your sales and marketing plan should be is to create more sales through qualified leads.  What’s the difference?  Efficiency.  You pay an enormous amount of money for your advertising and marketing plan.  Why not create maximum value for your money?

 The first step is to create the equivalent of an online salesperson or gatekeeper.  It’s not as difficult as it sounds.  It’s as simple as providing up front answers to the majority of questions that a potential customer may have.  For example, customers viewing vehicles online will often send in a lead asking if a specific vehicle has had an accident.   It is quite an inefficient process to send that individual potential customer the history, let alone the time that’s likely then invested to attempt to convert that weak lead into a sale.  If the information was instantly available online, you would be saved the time and energy it takes to respond to the individual potential customer and to chase a weak lead.

Think back to when we didn’t advertise the price of the vehicle online – how many leads inquired as to the selling price?  What was the conversion rate?  How many more rejections did your front line staff face back then?  I’m pretty sure once you started advertising a price, your leads went down, but your sales went up (or at the very least remained the same).  You were more efficient.

Full disclosure of important facts online makes the dealership more efficient and, by default, more profitable.  That disclosure also has the added benefit of being a more transparent and professional way of doing business – and giving customers an all-around better buying experience. 

If you create an informative, emotionally attractive and professional vehicle detail page, the market will reward you for being an early adopter.  When you are efficient in the category of marketing and advertising, the overwhelming majority of your phone and Internet leads will come in with the line “is the vehicle still available?”  Just by the type of question being asked, you know this is a better lead than “what’s the selling price?” or “has this vehicle been in an accident?”   

Overhauling the way you deal with online information disclosure for each vehicle will definitely take some extra upfront effort.  However, it increases the efficiency of your dealership’s used-car department and produces higher quality leads, and more satisfied customers.  And, that’s what efficiency is all about – smoother processes, happy customers and more profit!

Remember, it all starts with you!

Richard Macdonald is the founder of RPM Solutions. Richard provides consulting, training and coaching services to new-car franchise stores to help them maximize their used-car department profits. For more information,  Richard at (416) 894-1475 or .

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