Dealerships may be missing out on an opportunity that could really help their bottom line: the profits realized from trade-in vehicles. A recent study indicates that dealers spend about $1,500 per unit less on trade-ins than cars purchased at auction. Tapping into trade-ins as a top source of profit can be a way for your dealership to take advantage.

Survey Pinpoints Some Profit Problems

In a recent dealer profit study conducted by MAX Digital, 430 US dealerships were surveyed and the results show that over half aren't profiting from their trade-ins. Trade-ins are a profit source dealers should take advantage of, yet only 15% of dealerships surveyed say their trade-ins are a top profit source. Additionally, less than half of the dealers taking part in the study were under-allowing on trade-ins, and averaging only $250 per vehicle.

Other key findings from the MAX Digital study:

  • As New Car Profits Decline, Trade-Ins and Changing Processes Can Help Used cars remain more profitable as new vehicle profits shrink – Dealerships that were surveyed noted that they see more profit from used cars compared to new. In fact, over the past two years, 60% of the dealers reported that profits on new vehicle sales fell an average of $170 per car. Overall, gross profits from used vehicles averaged between $1,500 and $1,999, while new cars grosses ranged from $500 to $999 on average.
  • Some dealerships are discounting themselves out of profits – Profits suffer when you negotiate below a vehicle’s listed price. Of the dealers surveyed, 65% said average negotiations take more than $500 off listed prices. This represents a 9% increase from a 2017 study, where only 56% of dealerships reported this happening.
  • A change in sales process and more training may help – Dealers surveyed agreed that regular training offers a big opportunity to increase profits. In addition to more training for sales staff, dealerships are looking for more profitability as a result of a change in their sales process – 45% of surveyed dealers agree with this. The majority are looking for a more technology-integrated, consultative sales approach.

Institute a Change for More Profitability

According to a recent MAX Digital whitepaper, when dealerships get customers involved in the trade-in process, things tend to go more in your favor as a dealer than you might expect. Several stores have been trying out a collaborative approach – handing the customer an iPad and having them take part in evaluating their own trade-in.

Some dealerships in Wyoming and Nebraska owned by Fremont Management Co. shared their experience, and it's a positive one.

"When we get the customer interacting in the trade, all the armor comes off. They feel very powerful ... it slows the customer down and makes them think about what their car is like," said Brad DeSelms, sales director for Fremont Management Co.

This process changes the framework of the negotiation process, and puts customers more at ease; this is good, since 66% of customers revealed in a 2018 survey that car buying is a stressful process. Not only are Fremont dealers seeing less stress on the showroom floor, they're seeing larger front-end profits from using collaboration tools.

To prove that point, DeSelms pointed out that most customers rate their vehicles at 80% or below. In fact, across dealerships using this approach, like Fremont, there was an average of a 47% increase in front end gross over they were seeing before implementing the collaborative process.

"... A misconception in the industry for a long time [was that] if I'm transparent with my process, if I'm collaborative with the process, if I let the customer be involved with the process, that means I'm going to make less money," said Mike Cavanaugh, executive vice president of MAX Digital. "And it's not true. The customer wants to feel they're part of the process. It's about having a conversation about how a dealer arrives at the trade-in value, taking into consideration the book value and the market price, but also the vehicle's specific history and what the customer says about the car's condition. The collaborative process drives more profit."

This strategy not only leads to the opportunity of creating an under-allowance, it also saves time in the purchase process. In light of these findings, implementing a similar process in your store may help increase your profits and sales. One dealership noted that implementing customer involvement has translated to a 5% higher closing rate.

Let Us Help You Bring in More Prospects

In order to implement changes as other stores have, you need prospects with trade-ins that are ready to buy. That's where Auto Credit Express can help. We've been a leading and award-winning generator of subprime leads for over 20 years. Now, through our collaboration with CarsDirect, we're proud to offer new and used leads as well.

With our help, you can increase the number of prospects coming into your showroom, which gives you a greater opportunity to implement more customer-involved strategies, which can lead to increased sales and profitability for your store.

Don't hesitate to see what we can do for you! Simply give us a call at 888-535-2277, or fill out our contact form online and we'll reach out to you.