It’s a seller’s market right now, and dealers who’ve spent years struggling against margin compression are breathing a sigh of relief.
However, we’re moving back towards a buyer’s market each day. When the market finally flips — as it always does — dealers will again be fighting for front-end gross.
Why? Because companies like big-name auto conglomerates continue to encourage their customers to compete on cost instead of value. The result has been a race-to-the-bottom on price that’s left many dealers across the country with razor-thin margins.
Today’s dealerships need a winning strategy that strikes the balance between high inventory turn and high front-end gross.
No one can predict when the market will change, but that won’t matter if your dealership is already prepared for the road ahead. Below, we’ll share ways you can start building a strategy that lets you hold front-end gross without sacrificing turn. Let’s get into it.
1. Sell on Value, Not on Price
Let’s start with the number one thing eating away at your margins — competing on price alone. Dealers need to win over customers without pricing themselves out of business.
How? By selling on value, not on price.
“Communication is key to selling on value.”
For example, let’s say you have an SUV on your lot that a potential buyer is interested in. You’re selling it for $20,000, but because it’s had $1,500 worth of reconditioning, comes with a 6-month warranty valued at $1,000, and is priced $500 lower than what CarFax is suggesting, the authentic value is actually $23,000.
Not only are you winning that customer’s trust by essentially giving them a $3,000 discount, but you’re keeping that vehicle at a price point that protects your margins.
Communication is key to selling on value. Take time to ensure your inventory’s authentic value is properly communicated across every channel: on your website, through third-party listings, in your manager communication, and between salespeople and customers.
Product tip: Dealers can update VinCue with information about dealer exclusive items and reconditioning; VinCue will then automatically include these and other value-adding features when generating ads and third-party listings.
2. Build a Better Buying Strategy
Dealers need to be able to buy the right inventory at the right price. However, searching high-and-low for the best deals can quickly become a full-time job.
That’s exactly why some dealerships have in-house Vehicle Buying Centers (VBC). While hiring additional staff for your VBC isn’t cheap, long-term savings far outweigh the costs.
Consider this scenario: Dealership A and Dealership B are both seeing a huge spike in demand for compact cars in their market. Because Dealership A doesn’t have a VBC, they’ve gone deep out of pocket to buy expensive inventory to keep up with demand. Meanwhile, Dealership B was able to turn a huge profit since their VBC sourced the same vehicles from out-of-town auctions at much better prices.
Your VBC team does more than just find the best prices. They also save you money by finding deals that waive extra fees, such as for transportation. Remember, every dollar counts when it comes to front-end gross.
For dealerships without a VBC (or those looking to strengthen theirs), VinCue’s built-in sourcing and appraisal helps you identify the cars you need and acquire them from auctions nationwide at prices that protect your margins.
3. Make Front-End Gross a Company-Wide Mission
As a dealer owner or GM, you know how important maintaining front-end gross is for business. But does your team feel the same way?
Every part of your operation, from sales to merchandising to maintenance, should be working to improve your margins. That means making agreements with each of your employees on their personal accountability to increase front-end gross.
For instance, let’s say you’ve hired a photographer to take high-quality photos of your inventory. They like the idea of taking photos of your vehicles in different locations, but you know from experience that simple photos of cars on your lot are the most effective. Communicate this to them, and make an agreement that they’ll take the photos that drive the highest traffic to your VDPs.
The last thing you want is to streamline your entire operation, but have one manager or salesperson gumming up the works. By holding everyone accountable, you’re building a team culture committed to doing what’s best for your business.
VinCue’s best-in-class syndication and merchandising removes the guesswork for you by identifying the superlatives, features, and photos that catch buyers’ attention.
Work to Win, Not Just Survive
At the end of the day, many of the issues causing you to lose front-end gross are caused by complacency. You’ll never see profits increase if you’re just putting your business on autopilot.
We’ll put it this way: average dealers take the path of least resistance. Don’t be average.
Sure, margin compression is scary. But if you take a breath, stay proactive, and actively look for problems you can solve, you can get out ahead of thinning margins.
Stay Proactive with VinCue
While you can count on these tips to get you started, using the right tool can help get you there faster. VinCue’s all-in-one pricing, sourcing, advertising, and inventory optimization platform helps cover your blind spots so that you can sell cars faster while growing your front-end gross as well.
Ready to take hold of the reins and start winning on front-end gross? Schedule a demo today.