Used car pricing is the cornerstone of your overall used car business strategy. I get ask a lot of questions about this subject, and the 4 most common mistakes in used car pricing I see after examining a stores price are these.
Used Car Pricing Mistake #1
Know What Your Customers are Searching For
If you are going to be an expert at your craft, you must know what your target audience is searching for. This is a strategy I discovered a few years ago, and it has drastically increased my SRP’s and VDP’s month after month.
This is real, out of the box, thinking for the normal used car manager. We are marketing on digital platforms, so we need to understand exactly what customer behaviors drive customers to your cars. If you, we are trying to find information about something you were interested in where would you go?
Google It!
The number one term when customers are searching for used car pricing is “used car value KBB.” Keeping this in mind, you should always know the KBB used car value of every car, price your car in line with that value and 97% of the retail book.
I found this by using a keyword search tool that internet marketers use to find keywords to target in their ads and articles. So, it stands to reason, if the number one value that customers search for is, used car value KBB, you had better make sure you are in line with the KBB used car pricing guide.
Used Car Pricing Mistake #2
Adjust Used Car Pricing Every 7 Days
You would think that this is quite common practice in today’s used car pricing strategy, but you would not believe how many times I see this common, and costly, mistake.
Adjusting your used car pricing every 7 days is something that must be follow daily. This increases your turn, lowers aging inventory problems and sends text alerts to customers that the price was just lowered for a car they have on their KBB watch list.
The key when lowering your used car pricing is to adjust the value by only 1%. There is no need to take a drastic cut of $500 or more dollars. Lowering by 1% is what triggers KBB to send the text alert to your potential customer. If your average inventory cost is in line with the national average, this should result in a $200-$300 used car price reduction.
Here is a great example:
At first glance, someone might say that this car is priced to market. If you dive deep into the details, it is not priced to market. Let us examine.
It is priced at 97% to market, what is wrong with that you may ask. Here are the issues with this car.
- In the Lexus world, it is not a good color combination
- It is 49 days in inventory
- It has an accident on the Carfax report
- The price has only been adjusted once in 49 days
- High day’s supply
- The Drill down in the competitive set is too narrow
That brings me to the next most common mistake in used car pricing.
Used Car Pricing Mistake #3
Broader Model Search Terms Equal a Better Competitive Set
In the image above, on the left middle section, you have the criteria of what makes up the competitive set you are a basing your used car pricing against.
- 2016 Lexus RX 350
- Series:350
- Certified: Yes
- Drive Train Type: AWD
- Navigation System: Yes
When you deep dive too far into specific options, this lower the number of cars in the competitive set causing the illusion that you have your car priced to market.
If you were to remove AWD and Navigation the price of this car rises to 100% of market. That is a disaster for a 49-day old car. With all the issues this car has such as bad color combo, Carfax issues and high days’ supply, you can now see why this car has not sold.
That bring me to most common used car pricing mistake #4
Used Car Pricing Mistake #4
Know the Positive and Negative Attributes of Each Car
There are subtle nuances in every brand that determine the scarcity and perceived value of each make and model.
For example:
If you have a White/Parchment Navigation equipped any model in the Lexus world, that car is more valuable than any other color combo. In the Audi world, White/Parchment Q7’s or Q5’s sell, while a White/Black color combination is more preferred to the Audi buyer.
Knowing your positive and negative attributes plays a huge role in how your price a car. If a car has a lot of negative attributes, like our example above, you should price that car more aggressively, so you have a better chance to move that car quickly, without incurring a loss. Keep in mind, our 2016 RX 350 example appears to have plenty of margin left, after you subtract the cost of $1395 for the CPO warranty, that only leaves you with 50% of the margin you thought you had.
If you would like to learn more on building a profitable pre-owned business strategy, Check out my post on the 6 Building Blocks for a Profitable Pre-Owned Business Strategy.
All excellent points Craig. At West Herr, we think similarly… I’d also add two more:
1. Making the correct disposition strategy on day 1. (Wholesale, Retail, and ‘new’ Subprime)
2. Don’t price everything cost to market. We have a bucket of vehicles based on organic non-prime business, designed to serve a ‘cost to lender’ approach. Arbitrage opportunity in the face of declining margins (and race to the bottom concerns).
Excellent points as well Matt. I really like your organic non-prime approach. That’s smart thinking on your part.