Gone are the days when a time-served student of a region’s car market could rely on their wits alone to maintain maximum profit margins.
While emotion can still play a part in selecting eye-catching vehicles to draw in passing trade on the forecourt or via aspirational internet searches, a speedy stockturn and a top return on investment rely on rich sources of data.
This was the conclusion when ID approached top traders and market analysts to gather their views on best practices for delivering the best “profit per parking space, per month”.
CarShop chief executive Jonathan Dunkley (subject of our Face-to-Face interview on Page 6) said: “It was a case of ‘that’s what my native wit tells me to do’ but times have changed and that is no longer going to work.”
Rupert Pontin, director of valuations at Glass’s, added: “Dealers are harvesting their own data in a much more efficient fashion and using it more effectively.
“More and more, they are coming to us to see how they can get hold of our data in its rawest form and integrate it directly into their DMS systems.
“They want to see what is happening in the market on a forensic level to inform their stocking decisions.”
The price is right
While vital tools of the trade are provided by companies such as Auto Trader, Cap HPI and Glass’s, the foundation stones of strong data – which can help to determine the best-selling stock – have to be laid at home.
Top ID50 traders are investing heavily in technology and analysts – which allow them to harvest data from the live market, analyse trends in microscopic detail, monitor interest in online adverts via Google Analytics, record telephone enquiries and in-depth detail of the vehicles they sell – to chart best margins and quickest stockturn.
Marc Thornborough, Auto Trader’s brand director for independent retailers, said: “High street retailers like Next and Tesco put data at the heart of what they do, mapping shoppers’ habits to determine what they need to stock. That learning is now, finally, influencing the way car dealers buy their stock.
“We can see from our data which cars perform best in terms of price and sell fastest in different parts of the country. Desirability really does vary from one region to the next.”
Thornborough said data had become a key influencer of a speedy stockturn.
“I ask all retailers I meet the same question, ‘What is your profit per unit?’ To a man they will tell me. Then I ask them how quickly they turn stock and few have the answer,” he said.
Research by Cap HPI found the average transactional difference, the gap between the price advertised and the eventual sale price achieved, almost doubles over a 12-week period – from 3.8% in the first week a vehicle is advertised, to 6.4% by week 12.
Cap HPI also determined that a dealer with an average gross profit of £1,350 per unit and a stock turn of 51 days will offer an average retail discount of £704 once the vehicle reaches 90 days in stock, cutting into its profit margin. However, the cost of a sale will reach £2,376 over the same period (the dealer could have sold 1.7 cars in that time).
Thornborough said: “Speed of stockturn should be one of the number one metrics. The longer you have a car, the more it starts to cost. Sell more cars quicker and you’ll be able to increase profit still further with more opportunity to sell warranties, insurance and service packages.”
Many retailers have streamlined their vehicle preparation processes to turn cars around more quickly to liberate greater profits from a market of shrinking margins.
Dunkley targets a 48-hour turnaround while Matt Kay, managing director at Cartime, wants his premium stock ready in two to three days.
“During plate-change months like September, the changes can be even more pronounced, so traders have to be more vigilant than ever about the stock they buy and the prices they are willing to pay” Rupert Pontin, Glass’s
Thornborough said tools such as i-Control and Retail Check reduce the number of days required to turn. The i-Control tool gives cars a desirability rating based on metrics including average speed of sale and perceived consumer demand, while Retail Check adds value-for-money scores.
Without these tools, Auto Trader said 28% of the stock it sees advertised is not in demand in the local area, while 49% is priced at least 5% above or below customer expectation and a sizeable chunk of stock (38%) has not been repriced in the past 60 days.
Thornborough said: “We see around 30,000 price changes to vehicles every day. If you put a car on the market at £5,000 and don’t change it, then the market expectations will have altered hugely in 60 days, changing three, four or even five times.”
CarShop revisits its prices every 15 days, while Cartime re-evaluates its vehicles every week.
Pontin said constant monitoring to ensure prices remain in line with the market is as important as buying stock at the right price, but added: “During plate-change months, the changes can be even more pronounced, so traders have to be more vigilant than ever about the stock they buy and the prices they are willing to pay.”
Phillip Nothard, editor of the Cap Black Book, added: “You need to know where the market is going so that stock is priced for the market. You can’t afford to stretch your margin and have a car sat around for 80 or 90 days because every day the cost of that sale is increasing.”
Getting the right mix of sources
Jonathan Allbones, sales director at The Car People, said he is yet to find a single tool that can accurately locate the right stock at the right price, but bases buying decisions on various levels of market intelligence.
The Car People develops a strict shopping list of required stock and draws on a range of data – including its own sales and searches on its website – to get its stock mix and prices right.
Allbones said: “We assess line-by-line what stock we have and identify gaps in mix to a model level.
“We have a weekly meeting to discuss market pricing and any opportunities, as the situation with used cars is that sales are heavily value-orientated.
“We have a weekly meeting to discuss market pricing and any opportunities as the situation with used cars is that sales are heavily value-orientated” Jonathan Allbones, The Car People
“There may be many people on Auto Trader looking at a specific model, but if they’re not in the market, have too high a price, or there are impending large volumes of that product coming to market, then you’re better off not buying it.”
Six roving buyers and two office-based staff source stock for The Car People’s three sites, with purchases between one and six years old with a value of between £4,000 and £30,000.
Stock is sourced from all over the country from private sellers and auctions.
Allbones said The Car People is not afraid to market the high volume of part-exchanges it receives, providing the vehicle fits its stock profile.
There is room for some less forensic purchases too, according to Adam Stott, owner of Big Cars. He said: “We’re a bit obsessed with data, we know what cars we need, but we’ll still divide our stocking facility between what we know we need, what we would like and what we might be willing to try.
“Sometimes there is still occasion to get a car that isn’t flagged up in the market data that will turn quickly and then you feel like you’ve made a discovery.”
Like most dealers, Stott uses BCA and Manheim auctions as a key source of stock.
Auction houses are increasingly focusing on providing stock which is ready for retail, thanks to PDI services such as Manheim’s 56-point SureCheck process and 360-degree imaging service, which produces advert-ready imagery.
“If you rush to reduce the price by too much, you can fall out of the reckoning against rival cars” Matt Kay, Cartime
However, Nothard warned that dealers must approach auction sales with a clear plan and not get carried away in the buzz of bidding.
He said: “It’s best to formulate a clear plan before bidding starts. Study what’s on offer and know exactly what you are going to spend. Getting carried away at an auction is a sure-fire way to eat into margins.”
BCA Auctions allows dealers to assemble an auction guide of their preferred vehicles and print it ahead of the sale, to aid their focus on a fixed set of targets.
Getting ‘cute’ on car buying
Independent retailers need to be “as cute as possible” to get stock at the right price as larger groups and franchised networks leverage their influence to turn volume at low margins, according to Pontin.
He said: “The auctions have started putting their fees up, but increasingly the leasing and daily rental companies are creating their own routes to market and that’s the kind of cute buying that an independent dealer needs to look at.”
At CarShop, a 60-day sale-or-return deal with key leasing providers gives Dunkley a ready source of stock without the need for large-scale investment.
He also uses an online car buying channel, Sell Us Your Car, to gain stock without incurring auction fees, a tactic also employed by Stott, who sources 5% to 10% of his stock from private sellers.
Kay, meanwhile, said about 5% of Cartime’s stock of 500 cars is on a sale-or-return deal with a private seller at any one time and he employs pay-per-click (PPC) online adverts to appeal to sellers directly.
While BCA’s specialist BMW and Audi sales are a key source of stock, Kay said: “Sale-or-return is a really good way of getting stock without paying auction fees and, while it only accounts for a small volume of our sales at the moment, it is something that we would look to expand upon.”
Websites such as tootle.co.uk and motors.co.uk are offering motorists the opportunity to sell their cars directly to dealerships at rates lower than those of an auction house.
Tootle includes HPI and MOT checks on every car and allows dealers to input their stocking preference and receive updates when appropriate vehicles are uploaded to the site.
In July alone, it sold £1 million worth of vehicles, claiming an average £400 saving per sale on the equivalent auction fees.
The break-up – when to cut your losses
Few of the dealers ID spoke to said they would sell a car they had sourced for stock into an auction or into the trade if it overran their maximum days in stock.
Thornborough said: “By the time you get to 90 days, the rot’s already set in. By that point it’s already a distressed sale.
“We try to encourage the trade-to-trade market once somebody has worked out what their strategy will be, getting out of a car at 60 or 90 days.
“The first handle people might reach for to sell a car after their maximum stocking period is to reduce the price, but we think that’s the last thing you should do. Remarket it. Take it off the market, valet it, take new pictures and put it back on the market and the effects on response to an advert can be amazing.”
Kay, too, subscribes to the remarketing approach. As well as introducing a 30-day prepping cycle to keep his stock looking fresh, Kay will take a car off the forecourt for five days if it’s unsold after 90, fully prepping it before re-taking pictures and creating a new advert.
He said: “If you rush to reduce the price by too much, you can fall out of the reckoning against rival cars and that can actually damage your chance of a sale. Sometimes putting the price up will have a more positive outcome.”
Allbones said: “If we do find a vehicle that is taking ages to sell, we will keep re-pricing it until it goes.
“There is usually a reason it doesn’t sell at a sensible rate or for a reasonable return. This information is fed back to the buyers to try to ensure we don’t repeat the exercise.”
Stott’s average stockturn is 28 days, but he allows 90 before “questions are asked” of what to do with stock, adding that there is no cast-iron disposal process at BigCars.
Nothard wants a more ruthless approach from dealers who seek his advice: “People need to understand the market is changing. It is essential that dealers are on-point in micromanaging their stock and ruthless in their stockturn. If a vehicle isn’t selling, get out of it, either trade-to-trade or at auction. Your money could be better spent elsewhere.”