Buying cars from the public keeps inventory on the lot, but measuring your ROI for private-party acquisition helps you scale and grow
Finding affordable used inventory in today’s market is about as challenging as a fish trying to climb a ladder – and it’s just as painful to watch. That’s why smart dealers are getting creative and going directly to the private market to source vehicles.
And, sure, it helps keep your lot full, but do you know the actual financial impact of private-party acquisition?
Whether you’re considering an investment in private-party acquisition or you’re trying to understand how buying cars from the public is impacting your business, we’ve put together everything you need to understand the gross financial impact that private-party acquisition and a Vehicle Buying Center (VBC) might have on your dealership.
TLDR:
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Understanding the Gross Financial Impact of Private-Party Acquisition
More and more dealers out there are taking back control of their buying strategy by focusing on private-party acquisition. However, not every dealer is measuring the financial impacts outside of just making sure they have cars on the lot.
When we work with customers to build a Vehicle Buying Center, after just a few months we have found that they’re not just adding a couple thousand, or even tends of thousands of dollars a month to the bottom line, they’re adding hundreds of thousands of dollars a month to their profit & loss statement.
Understanding that additional revenue is important because it’s what allows you to make the decisions to scale your private acquisition strategy and invest in more people, process, and technology. Once you understand what you’re earning from your VBC, you can justify and prioritize your investment back into the business.
Scale & Grow your VBC
Building a Profit & Loss Statement for your VBC
All of this starts with building a profit & loss statement specifically for your Vehicle Buying Center. This helps you understand the gross financial impact of using private-party acquisition as a strategy – especially compared to other sourcing strategies, like auction.
1. Start with a Goal
First thing is first, how many cars do you want to buy from the public. But not just that, how many this month, how many next month, how many by the end of the year?
We’ve talked before about dealerships that have utilized their VBC to Buy 100+ Vehicles per Month. While that’s a great stretch goal, it’s more typical to start with a modest target — let’s say 20 — and gradually work towards a long-term acquisition goal.
AUCTION Acquisitions
20
PRivate-Party acquisition
20
2. ACCOUNT FOR TURN
You can’t fully understand the gross financial impact of a Vehicle Buying Center without accounting for turn.
Turn is important for this exercise because it’s easy to compare 20 auction purchases to 20 private-party acquisitions, but your financials are measured in months and years.
You can probably figure out how much faster they sell on your lot, but VINCUE customers on average report about 25% faster turn compared to about 38 days for auction purchases. Private-party acquisition turn faster because you’re only buying what you know you need.
AUCTION Acquisitions
38d
PRivate-Party acquisition
28.5d
3. Estimate FRONT-END GROSS
Buying cars from the public doesn’t just keep your lot full, it also lets you hand-pick vehicles you know you need, at a price you can afford, and only after being able to fully inspect the vehicle.
Compare that to the cattle-call at the auction house and it’s no surprise that most private-party acquisitions gross on average $1,200 more than those bought at auction.
If you’re already buying cars off the street now, it should be easy to figure out what the difference between your front-end gross and turn actually is – but we’ll use our averages for simplicity.
AUCTION Acquisitions
20
AGV FRONT-END GROSS / AUCTION
$800
AVG GROSS / 20 AUCTION buys
$16k
TURN ADJUSTED GROSS / MO
$12.6k
PRivate-Party acquisition
20
AVG FRONT-END GROSS / PPA
$2K
AVG GROSS / 20 PPA
$40K
TURN ADJUSTED GROSS / MO
$42.1K
4. ESTIMATE ACQUISITION COSTS
Balance sheets need to be balanced, so it’s not just about additional revenue – it’s also about what it takes to get there – and making sure you’re profitable.
The most important thing about private-party acquisition as a strategy is that you immediately eliminate auction fees and transportation costs. But that doesn’t mean that a Vehicle Buying Center is free – you still need to pay your buying agents.
When we help a customer setup VINCUE VBC, we suggest a compensation model that scales with performance. For example, most VBC agents can purchase about 25 vehicles a month. Let’s assume a $3,000 base plus $100/acquisition. That’s about $220/PPA.
AUCTION Acquisitions
20
AGV AUCTION FEE / CAR
$300
AVG INSPECTION FEE / CAR
$300
AVG TRANS COSTS / CAR
$100
COMPENSATION COST / CAR
$0
ACQUISITION COST / 20 AUCTION CARS
$14k
TURN ADJUSTED AUCTION COST / MO
$11k
PRivate-Party acquisition
20
AVG ACQUISITION FEE / PPA
$0
AVG INSPECTION FEE / PPA
$0
AVG TRANS COSTS / PPA
$0
COMPENSATION COST / PPA
$220
ACQUISITION COST / 20 ppas
$4.4k
TURN ADJUSTED PPA COST / MO
$4.6k
5. CALCULATE MONTHLY / ANNUAL RETURN-ON-INVESTMENT
Using these estimates, it’s then just a simple matter of arithmetic to determine how much you can expect your Vehicle Buying Center to impact your bottom line.
FRONT-END GROSS / MO FOR AUCTION
$12.6k
ACQUSITION COST / MO for AUCTION
$11k
PROFIT / MO on AUCTION
$1.6k
FRONT-END GROSS / MO FOR PPA
$42.1k
ACQUSITION COST / MO for PPA
$4.6k
PROFIT / MO ON PPA
$37.5k
(+ 2,300% OVER AUCTION)
ANNUAL PROFIT / YEAR
20 PPA / mo
$450k
Now $450,000 isn’t nothing, but it’s also not life-altering. But consider that estimate is based on buying just 20 cars a month from the public. If your dealership does 50, 75, or 100 units a month, that number scales quickly and impressively the more you source from private-party acquisition.
Ready to Build Your Own Vehicle Buying Center?
Private-party acquisition is your key to higher profits and turn in today’s ultra-competitive market. With the right tools and processes in place, your dealership can buy more of the cars you need at prices that are fair to both parties. And VINCUE can help you do it smarter, faster, and with better results.
VINCUE’s Private-Party Acquisition Return-on-Investment Calculator lets you easily calculate how much your dealership could earn through its own VBC in seconds. Once you’ve seen the benefits, our team is here to help set you up with the VINCUE VBC™, the industry’s only digital platform built specifically to help dealerships like yours build and scale their PPA strategy from the ground up.
