One thing you should learn from Carvana
The automotive industry is still under uncertainty. Chip shortage due to the use of silicon in COVID vaccines and an uptick in demand due to a rise in wages and stimulus checks is drastically impacting the industry. So much so that Production is not able to keep pace with demand and several OEM’s, including Ford and GM have idled shifts as a result. Consequently, it has been a challenge for the dealerships to find a reliable way to procure used vehicles.
According to the Detroit Bureau publication, many companies decided to temporarily pause their production due to the semiconductor shortage. For example, Ford had to stop production in Louisville, Kentucky, in December 2020, followed by a month-long pause at a German factory. Stellantis (the new company formed by a merger between Fiat Chrysler and Peugeot) reduced output at factories in the U.S., Mexico, and Canada around the same time.
The more your buy, the more you can sell
Amidst the production deficiencies of new vehicles, selling used cars is an obvious option for the dealerships to stay profitable. However, it is a big task to find a proven way to procure used vehicles. Carvana has demonstrated that the best inventory comes from customers. As a result of their proactive efforts to buy more, they have sold more and reaped higher profits.
Automotive News reported that Carvana significantly grew its PVR profit, reaching as high as $2,022 compared to $1,190 in the year-ago period and $1,211 in the first quarter of 2021.
Some of its significant milestones are:
- First net totaling $45 million
- First time gross profit per vehicle topped $5,000, rested at $5,120
- First time retail gross profit per vehicle topped $2,000, rested at $2,022
- First time revenue topped $3 billion, rested at $3.34 billion
- First time vehicle sales topped 100,000 in a quarter, rested at 107, 815
Are you thinking amidst the shortage of new vehicles, how did Carvana manage to skyrocket its profitability? We have the answer for you.
Carvana took a creative way to procure used vehicles. They focused on buying cars from customers to navigate the inventory shortage issue and improve its reconditioning capacity and speed. Sourcing used inventory from customers and reconditioning it quickly, so it is ready for sale, helped Carvana grow retail units by 17% quarter over quarter. Additionally, the company increased its inspection and conditioning capacity to meet the demands of the vehicles—additionally, the expansion strategy aimed at achieving scale first and then profitability.
What does it mean to you?
Your dealerships can attain higher growth with a similar strategy. By buying vehicles from your customers and reconditioning them faster could help boost your profit. However, there is more you can do to increase your PVR.
Here are some strategies for you to procure used vehicles, and increase your profit per vehicle:
1. Opportunity in Service Drive:
Good used cars are hard to find. Fewer vehicles are going through auction, and those that do are selling at record-breaking prices with questionable quality. Where is the good used car inventory? Have you checked your service drive?
You know the customer. You know the quality. The average dealer sees at least 300-400 used cars per month come through service. Are you offering these customers buy-bids and appraisals? Many may be unaware that the value of their vehicle is at its peak. Your guaranteed price may be just the nudge they need to cash in, buy something from inventory, or pre-order something new from you. We know you’re selling out of your service drive. Are you also buying?
2. Offer valuable F&I products
Consumers know that in the current market situation finding a desirable vehicle is not easy. So, they value their prices possession and would be interested in protecting it. Products such as GAP can help them find peace of mind in case of theft. Furthermore, GAP will help guard against the threat of negative equity when the market moves back to normal. It is a product that covers a car buyer’s negative loan balance in the event of total loss from theft or collision.
3. How do you sell more products:
Explaining the customers that the insurance companies only pay the actual cash value (ACV) of the vehicle at the time of loss. Without GAP, consumers can easily be left owing thousands of dollars on their loans. In other words, the insurance company may not cover the difference between what consumers owe and what the vehicle is worth at that time of loss. Furthermore, this will create the need awareness in customers and help you handle objections that the customer might have regarding the value of the product.
4. Make an offer your customers cannot refuse:
It is needless to say, consumers love instant cash offers and instant appraisals. Offering an appraisal and a buy bid on cars that come to your service drive will accelerate your buying opportunities. Notably, capitalizing on service drive will create a win-win situation for both you and your customers.
We do the math. You keep the profit.
To conclude, being proactive and creative in your ways of procuring used inventory will help you stand apart from your competitors. In addition to the listed strategies, we have more effective and unique solutions to help your skyrocket your profitability.
- What would an extra $100 per vehicle retailed do for you?
- How will it impact your annual profit?
- Do you want to leave that money on the table?
We will help you find that money because we do the math to help you make more profit. Reach out to us today!