What’s Your Strategy for Pricing Used Cars?

Pricing Used Cars

Pricing Used Cars for Your Retail Used Car Lot

Having the right pricing strategy is key to selling used cars in todays markets. Pricing used cars and re-pricing should be strongly based on your market and the online metrics SRP (search results page) and VDP (vehicle detail page) you are getting on your website or other search sites you are advertising with.  It has become a best practice to have every vehicle you select for retail advertised for sale starting at day one with a competitive “go-to market” price. This means competitively pricing your vehicles to the market to achieve quick turn at a fair profit.

VDP conversions

0% – 2%       underperforming vehicles
2.1%- 3.5%  avg. performing vehicles
3.6% +         high performing vehicles

How to pick the right pricing strategy for your store. Different dealers are looking for different results from their used car department. Some dealers are looking to increase market share, while other dealers are all about the money. Whether you are going for volume or gross, having a pricing strategy and using it consistently will help you achieve the results you are going for. Here are two examples;

To achieve a MAX TURN set your targets at:

Days                  Min %         Max %
0-10                 0%                    95%
11-20               0%                    90%
21-30               0%                    85%
31+                  0%                    80%

To achieve the MAX GROSS set your targets at:

Days                         Min%               Max%
0-30                 110%               150%
31-60               100%               125%
61-90                 90%                 100%

Once you have determined if going for max turn (high volume) or max gross (all the money), which will cause you to pass on the occasional deal, it is time to build your pricing strategy. Most strategies are based on the age of the car. As a vehicle ages we move the price down in an attempt to build interest in it. While having pricing targets tied to the age, can and does work you still have to watch the market when it comes to making pricing moves. It’s not just age that causes values of vehicles to drop, although it is a big factor things like MDS (market day supply) and seasonal change will affect the value of your cars.

Market day supply (MDS)

0-40      days, fast moving

41-80    days, average

81-100  days, slow moving

101+     days, very slow moving

 

The most important part of having a pricing strategy or implementing any procedure is laying out your expectations and then holding people accountable to the task. Setting a strategy for a used car manager to follow can be tricky, from time to time they may have to veer off the strategy if the data they are looking at tells them to price a car different from the targets. You may have set your targets to price all fresh cars at 110% to market, but if the market day supply is 150 you will never sell that car for 10% over the market average price. You may not even sell it at 100%. Or maybe you have a 30 day old car and your target is set at 85% to market (15% discount) but you are getting an avalanche of internet traffic (4.5% VDP) you may want to holdout on moving the price down to 85%. Try moving it a few hundred dollars and watch the traffic. Don’t give up gross if you don’t have to.

 

So you have picked your pricing strategy and set your targets now its time to outline your plan. If you need a little jump start here is a 70 day and out pricing plan.

Vehicles are looked at for re-pricing as they age. No vehicle should go longer than 7 days without a price change and should be changed by the Used Car Manager. It’s always a good idea to have the GM, as well as the other managers in your store participate in the pricing conversation. Set up a bullpen so you and your employees can look over fresh inventory before putting cars out on the lot. Have the go to market price at the bullpen so you can discuss it with the team.

0-15 day

The re-pricing of cars 0-15 day old should be done at 7 and 14 days. You will need to monitor the vehicle’s online performance with SRP and VDP metrics. Vehicles with a low conversion percentage or with low SRP counts will typically need a larger price adjustment to help them get some interest.

16-30 day

Vehicles are re-priced at 21 and 28 days. Under performing vehicles (0%-2% VDP) or vehicles with a higher days’ supply (over 81) are marked down in price more than vehicles performing at a high level (2.1% VDP or lower day supply). Try to position vehicles in the top 5 price point base on vehicle condition and miles to increase online traffic. Make sure all vehicles have marketable photos and a well written description that differentiates your vehicle from the competitions. Promote any maintenance or  recondition you have performed in that description.

31-45 day

Vehicles are re-priced at 35 and 42 days. These cars should be re-bull penned with sales consultants.  Used vehicle managers, inventory managers and sales managers need to review SRP and VDP counts as well as MDS – looking for underperforming and slow moving vehicles. Price changes at 42 days should be moved at or below 90% of the market and should be set in the top 3 price position. (Based on market size)

46-59 day

Vehicles are re-priced at 49 and 56 days. At this point, you should have an exit strategy depending on market days’ supply (MDS) and stocking levels of vehicle class. You may want to keep a vehicle with low VDP conversions if it is of like brand to your franchise, but make strong consideration to be price ranked #1 in your market. Use MMR (Manheim Market Report) to re-price your vehicle based on what this unit will draw at the auction.

60-69 days

Set the retail price at or close to what the car will draw at the auction. Its time to make this car go away and retail at any price usually makes more sense than taking a wholesale loss.

70 days and out

Time to rip the band-aid off and send it to the auction.

 

Hopefully you have been re-pricing and making good stocking decisions so you never have to send another car off to the slaughter.

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