In today’s rapidly changing automotive market, especially with the impact of new tariffs, having a strong acquisition strategy is more critical than ever. As we navigate through supply and demand disruptions, the ability to acquire the right vehicle at the right price is paramount. This article delves into the insights shared during a recent interview, highlighting the importance of acquisition strategy, the impact of digital tools, and the role of fixed operations in maximizing profitability.
The Significance of Acquisition Strategy
Acquisition has always been a cornerstone of the used car market. The approach to acquisition channels, addressing consumer expectations, ensuring accurate appraisals, and reconditioning determines your profit potential. Historically, auction inventory availability driven by strong off-lease volumes and consumers lacking a reference point for their vehicle’s trade-in value created an easy path to strong gross profits. However, the landscape has shifted. Today, auction inventory is down 5.2 million off-lease vehicles due to the reduction in new car production during the pandemic, and consumers actively price shop their trade-in value, making it essential for dealers to strategically source vehicles in the most efficient channels to generate gross profits. All of this occurred before tariff concerns introduced uncertainty into the market.
Tariffs will likely push more price-constrained consumers towards the used car market as new vehicles impacted by tariffs could see prices increase 10-15%1. On top of that, consumers will be more reliant on their trade-in equity to offset the increased cost of their next vehicle, as 24.9% of consumers are upside-down on their loans2. As such, dealers must refine their acquisition strategy and adopt digital tools to ensure they are pursuing every opportunity to win more trades from transaction-ready consumers.
The Role of Digital Tools
The digital transformation of the consumer purchase and trade-in journey has heightened the need for a precise, digital acquisition strategy. Consumers now spend significant time researching trade-in values online, with the average consumer receiving 2.6 cash offers3. This research creates a $2,000 variance in trade-in values on average, leading to consumer expectations for transparency and for an understanding of how the value was generated when they arrive at a dealership.
To meet these expectations, dealers must bridge the gap between online and in-person experiences and build trust in the appraisal process. This involves using digital trade-in tools that allow consumers to receive a trade-in value from the convenience of their device, while enabling the dealer to seamlessly continue the trade-in/appraisal process in-person when they visit the dealership – delivering an omnichannel trade-in experience for the consumer.
Once the omnichannel trade-in strategy is in place to win more trade-ins from consumers, the next step to profit generation is to place the right price on the right car during the appraisal process, ensuring maximum gross profit potential.
Employing a Consistent Appraisal Process
To maximize gross profit, it’s crucial to address the tightening margins in the used car market. However, many dealers face challenges due to inconsistencies in their appraisal processes. According to vAuto data, 28% of reconditioning estimates deviate from actual costs by $7504. If the average front end gross profit for a used vehicle sale is $1,462, missing recon by $750 wipes out half of the potential gross before the vehicle is even ready for sale.
This discrepancy is largely due to inconsistent appraisal methods on mechanical damage identification, but many dealers have effectively addressed these problems by implementing an OBD-II dongle on every appraisal. They use OBD-II dongles to accurately assess mechanical fault codes and identify the correct mechanical damage deduction, thereby reducing gross profit losses caused by appraisal inaccuracies. Additionally, these dealers maintain transparency by pushing those deductions downstream into a customer’s offer presentation that identifies the issue, ensuring they understand the basis of the appraisal offer.
Consumer Offer Confidence
A crucial component of the modern acquisition strategy that is most often missed is providing consumers with an Offer Certificate that explains how the final value was assessed. We know the amount of time consumers price shop and the amount of offers they have on hand for their vehicle. We also know there is an expectation of consumers on the part of the dealer to serve as that subject matter expert and educate them on the value of their vehicle. An official Offer Certificate can be used as a guide to help explain what damage caused value deductions, what features added value to their vehicle, and ultimately help them understand the uniqueness of their vehicle based on supply and demand.
Meeting consumers’ unmet needs in the trade-in process can increase understanding and reduce friction. In fact, 72% of consumers will accept the dealer’s offer if the dealer effectively builds consumer confidence in the trade-in offer by showing their work5.
Motivating Staff Through Pay Plans
Effective pay plans are essential for motivating staff to engage in the appraisal processes. Dealers can choose to compensate staff based on the number of appraisals completed correctly or the number of vehicles acquired. The key is to standardize the appraisal process, hold staff accountable, and ensure they are rewarded for accurate and thorough appraisals.
Another area of opportunity to incentivize staff and on acquisition opportunities is service and variable ops. Read on to see how aligning fixed and variable operations can help you navigate market disruptions and capitalize on opportunities.
Leveraging Fixed Operations
Fixed operations play a vital role in acquiring profitable inventory, and technology now exists to make this process more efficient. By aligning service and variable operations, fixed ops can identify consumers who are close to defecting from the dealership’s service drive and vehicles that perfectly match variable ops’ stocking strategy. This ensures that offers are generated for these mutually beneficial service drive acquisitions.
This alignment requires a technology stack that integrates a dealer’s Inventory Management, Appraisal, and Service tools into a single portal to engage consumers. Once the tech stack is in place, a solid service drive acquisition strategy involves clearly defining who will execute each step of the process and ensuring everyone is motivated through appropriate compensation. This includes compensating Service Writers for the dealer pay recon work when a consumer vehicle is acquired.
Vehicles acquired through fixed operations tend to be highly profitable, have full mechanical information available, and are rated as 8-9 in vAuto’s ProfitTime GPS stocking strategy. This approach not only enhances profitability but also ensures a steady supply of quality inventory.
Conclusion
A robust acquisition strategy, supported by digital tools and transparent processes, is essential for maximizing profitability in today’s automotive market. As we continue to face supply and demand challenges, the ability to acquire the right vehicle at the right price will remain a critical factor in achieving success. Check out the Complete Profit Picture series to ensure you’re driving more ROI and earning higher profits on every vehicle.
Sources:
- Cox Automotive, vAuto’s Provision data from March–June 2022
- vAuto + Dealertrack data, 2022–2023
- Cox Automotive Q4 2024 Vehicle Disposer Research
Micah Tindor
Senior Director of Strategic Planning,
Kelly Blue Book® Instant Cash Offer
Micah Tindor leads the Kelley Blue Book® Instant Cash Offer business within Cox Automotive, focused on providing the best trade-in solution for Dealers, Consumers, OEMs, and Partners. Micah guides KBB ICO’s strategy and its role in Valuations, Appraisals, Pricing, and Disposal.
Micah has 15 years in the automotive industry. Prior to his current role, Micah co-founded and served as COO of vAuto’s used car reconditioning software, iRecon. He held multiple Mobility leadership positions for Goodyear Tire & Rubber Company. Micah earned a bachelor’s degree at The Ohio State University and holds an MBA in Strategy from the Fisher School of Business.
