I was talking to a dealer last week about the challenge of playing the “race to the bottom” and how much he wants to stop pricing his inventory so aggressively. He wants to move to a model of selling the value of his product and organization. He believes that if he stops chasing price that he will achieve a higher average gross profit. He thinks the velocity mindset is hurting his average gross profit. He’s tired of playing his competitors pricing war games.
If you’ve followed my thoughts on this subject you know that I’m pretty convinced that if you pull back on your pricing that your grosses will go up….and, and, and…you know what’s coming don’t you? Your traffic will go down.
Screaming from the rooftops that you are a great place to buy a car won’t work for you unless you can scream it loud and clear and for a very long period of time. Your ultimate knee jerk of back to price wars would occur probably before you ran out of money.
If you follow CarMax you know they are the number one seller of used cars and don’t play much of the pricing game. Their cars are usually more expensive than yours. They have done a consistently good job of telling people, this is a great place to do business, we have lots of inventory and we will buy your car even if you don’t buy ours. That’s pretty much what they do. And, they don’t negotiate the price or the value of the trade.
We can all agree they have a totally different model than most new car dealers. Unless you are willing to convert to one-price, change your culture and are willing to spend a lot of bucks it’s not going to work for you taking the approach of “Buy here, ’cause we are great.”
I really do think one of the biggest problems in the industry (though it is getting better) is that when the customer shows up at the front door we still discount the car. This applies to new as well as used. The number one thing you can do to improve your operation and your gross profit is to learn to say “no.” Say it by presenting all those reasons why a customer should buy your car and do business with your dealership. You can only do this by preaching the message to your team every month, every week, every day. The entire team has to believe.
I recently visited with a very successful used car dealer who specializes in high line cars. He retails about 250 units a month and he gets about 1500 hits a day on his website. He said that he has noticed a trend over the last few years that people are driving shorter and shorter distances to purchase. His analysis of that is that more dealers are doing a better job of marketing their inventory online and therefore the customer can find what they want much closer to home.
As you may know Texas Direct has always used eBay as its website. In the early days they sold a large number of their vehicles online through eBay. A few years ago they relocated to an old Auto Nation Used Car Superstore facility and now sell a lot of cars to more of the local public. Yes, people still go online to find the price and car they want, but they are doing it in a shorter distant. Here’s a recent article on eBay losing traction that more or less backs up this thought process. Article
Strategy to consider:
1. Price your vehicles smarter. Everything doesn’t have to be at market price on the first day. Some should be over. Some should be below.
2. Re-price your inventory faster. Don’t let “buckets” rule your world.
3. Train and re-train your staff on selling the value of your vehicles and your organization.
4. You have to learn to say “no,” when the customer wants to negotiate when you know you are holding the winning cards. (Cars.)
Never give up on creating value, but if you give up on aggressive pricing you will be giving up a lot of traffic. That’s all I’m gonna say, Tommy Gibbs
1 thought on “What If You Stopped Selling Price?”
This is great. I was given the book and read it 3 years ago while on vacation. I closed the book and came back and decided that I was already doing just what it said. Every time I appraised a trade I looked it up on NADA, I looked it up on Black Book, I went to Autotrader and did a 100 mile radius vehicle search to see what everyone was doing. I wanted to make sure I EARNED the new sale while keeping my head on straight. Sure it took longer. It was worth it. Some times I had to get creative. The owner came in one day with a giant scowl on his face. He said “I was told we couldn’t make gross on New cars and stay left book on a trade.” Thank you for proving them wrong. Interesting the dealership was for sale when I went there. It looked good enough to sell. The new owners and I didn’t see eye to eye. They wanted to cut, cut, cut and not tell anyone any prices. I believe in full disclosure. No smoke and mirrors. Sell Value, dealership, salesperson, service and stay involved in the process. Customers loved giving us their money. You get what “you get what you pay for”, is what one customer said. We did treat him good. It was easy, we made money. Sure if someone was driving from another state and it wasn’t a specialty unit, I would take the other dealers sale.
It is all very interesting. I am looking for the magic car ball. Man things are strange out there.
Oh well that is why I love this business. Everyday something new, better, faster and stronger.
Thank you Mr Gibbs
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