“You don’t make money when you sell a car; you make money when you buy it.”
If you agree with this statement, then you already understand the importance of accurate used car appraisals. Appraisals are the lifeblood of any used car program because they have the biggest impact on your bottom line.
That’s right– it’s not just retail sales that drive profit; it’s your ability to buy and sell vehicles at the perfect price. To do that, you need a data-driven approach to appraising used vehicles.
The Cost of Poor Car Appraisal
Imagine David pulls onto your lot and wants to trade in his 2015 Volkswagen Jetta. David knows the KBB value of his car is between $13,000 and $15,000. However, based on some scratches on the bumper, you appraise it at $11,500. Hoping to earn more, David drives across the street to your competitor, who appraises the Jetta at $12,900. You lose the deal.
Even more frustrating? If you had properly appraised David’s vehicle, you would have known it was still worth $13,100 despite the scratches. You could have offered David even more than your competitor and still made a profitable deal.
What many dealers fail to realize is that you didn’t just lose one deal from David– you lost two. First, you lost the chance to sell David a new car on the trade-in. Second, you lost a chance to resell his car.
If you lose a lot of deals like this, it could be indicative of inaccurate appraisals. That’s why we track Missed Dealers in VINCUE:
If you’re failing in this department, it’s time to rethink your car appraisal strategy.
Used Car Appraisal Strategy: Optimize for Turn and Margin
A sound car appraisal strategy is based on two metrics: Turn rate and margin. While desired margins may vary, the optimal turn rate for a vehicle is 30 days or less.
Car appraisal strategy can be summarized by this question:
“What price allows me to turn a vehicle in 30 days while giving me the best possible margin?”
To do this consistently, there are several factors to consider.
How to Appraise Used Cars
No matter which tool you use for car appraisal, it’s important to factor in every pricing variable. Whether you’re buying cars at auction or conducting a trade-in, here’s a step-by-step approach to car appraisal:
1. Find the Average Clean Market Price
First, determine the average market price for the vehicle based on make, model, trim, and year. With VINCUE, you can find this information in the vehicle directory, by using the search bar, or by looking up the VIN number.
2. Input Odometer and Condition
How much wear and tear does the vehicle have? Be sure to consider the condition and mileage for the vehicle. VINCUE will automatically calculate the change in price based on this information.
3. Include Trim Level
Does the vehicle have valuable upgrades, like a navigation system, 4WD, or sun/moonroof? Some factors have a bigger impact than others. Choose the trim level and VINCUE will tell you the added value of each.
4. Get the Real Market Price
We want to optimize our price for a 30-day turn rate. VINCUE gives you this exact number: the Real Market Price. This number factors in the clean market price, odometer, condition, and equipment specs. Real Market Price is the highest you can charge and still expect to turn the car in 30 days.
5. Factor in Reconditioning
David’s Jetta had chipped paint on the bumper and needed new tires. Reconditioning costs like this can quickly eat up margin if they aren’t considered. Plug the estimated reconditioning costs into VINCUE and it will be factored into the final appraisal price.
6. Set Your Desired Margin
How much do you want to make off this trade-in? Enter your desired margin into VINCUE and it will be factored into the appraisal price along with reconditioning costs.
7. Get the Wholesale Appraised Value
Based on the Real Market Price, reconditioning costs, and your desired margin, VINCUE will then calculate the Wholesale Appraised Value. This is the optimal price to pay for the trade-in.
Other Important Car Appraisal Factors
Context is everything when it comes to winning the used car appraisal game. Specifically, what is going on in your market, your city, or with your competitors next door? VINCUE wants to arm you with the all the data you need to make the best decisions. Here are other important factors to consider when appraising used vehicles:
Compare Similar Vehicles
Want to know how your pricing compares to the competition? VINCUE will let you see prices and turn rates of similar vehicles in the area. This gives you the assurance that your pricing is competitive.
Turn, Supply, and Volume Rates
Some vehicles are just hotter than others. VINCUE lets you see the average turn rate, volume, and market supply of a vehicle before making an offer.
Most Attractive Features
David’s 2015 Jetta has a higher than average turn rate, but the diesel version of the Jetta has a below average rate. Other cars turn faster with 4WD or a sunroof. Appraising a vehicle at the equipment level helps you find hidden gems and avoid landmines.
Accurate Car Appraisals Make All the Difference
As the lifeblood of your used car program, we cannot put enough emphasis on the importance of accurate car appraisal. Not only does it help you meet your desired margins, but it also helps you close more deals (which can actually be two deals in one).
VINCUE makes it easy to determine the optimal price point for maximizing margin and turn rate. Moreover, it gives you all the information you need to judge appraisals for yourself and make the best decision.