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Used Car Pricing – 4 Most Common Mistakes

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’re seeking information about something you’re interested in, where would you typically 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, in the middle section on the left, you will find the criteria that constitute the competitive set against which you are comparing your used car pricing.

  • 2016 Lexus RX 350
  • Series:350
  • Certified: Yes
  • Drive Train Type: AWD
  • Navigation System: Yes

When delving too deeply into specific options, the competitive car set is reduced, creating the illusion that your car is priced according to the 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:

Owning a Lexus with White/Parchment Navigation elevates its value above other color combinations. It adds a touch of exclusivity and allure that sets it apart in the Lexus world.

In the world of Audi, White/Parchment Q7’s or Q5’s are popular choices, while the Audi buyer tends to favor a combination of White and Black.

Understanding both the positive and negative attributes of a car plays a crucial role in determining its pricing strategy. If a car possesses numerous negative attributes, as highlighted in the aforementioned example, it is advisable to adopt a more aggressive pricing approach. This increases the likelihood of a swift sale without incurring any losses. It is important to note that our 2016 RX 350 example still retains a substantial margin even after subtracting the $1395 cost for the CPO warranty. However, this deduction leaves you with only 50% of the margin you initially anticipated.

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

P.S Make sure you subscribe to my email list so you can get every post directly in your email box. 

Craig

I'm a business strategist specializing in pre-owned cars, with a passion for music, food, and wine. Remember, staying ahead of the curve is crucial for success!

This Post Has 2 Comments

  1. Matt Lasher

    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).

    1. Craig

      Excellent points as well Matt. I really like your organic non-prime approach. That’s smart thinking on your part.

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