Best Practices

Trade-in Value: The Missing Ingredient to Holding Gross and Building Trust

G Guest Poster
Posted onJul 4, 2010 at 1:00 PM
Updated onUpdated on Jul 28, 2010 at 5:05 PM

Since the beginning of car sales, we have tried to find that elusive balance between holding gross and increasing volume.

OEMs would love nothing more than to have an army of sales professionals whose sole focus was moving product- so much so, many of them have decreased profit margin to all time lows in the name of “customer satisfaction”; leaving dealerships with fewer and fewer ways to generate revenue.

So how do we continue to hold gross in a climate that has very little of it to hold? TRADE -IN VALUE!

Trade-in value is the missing ingredient to generating and holding gross in the new car deal, and increasing revenue in the used car deal. The trade-in is one of the most emotional aspects of a negotiation. Here is a vehicle that a customer has loved, repaired, cleaned and relied upon for transportation. It is a vehicle they “feel” about and an area of the deal that causes the most stress- not because they are not ready to part with it (however I have seen my share of hair pulling and crying during delivery about the old vehicle) but due to how we handle the presentation of figures on it.

Rarely do we take the time to explain our process and how we arrived at the value. Frankly, we generally send a sales person into a negotiation with a number they do not understand or know how to defend. To make matters worse, we are then very quick to back off the number and give in if we smell a potential sale. These practices have trained our customers to distrust our figures, fight us on value and detest the overall transaction.

The best way to build Gross in a deal and trust with a customer is full disclosure on the trade.

FULL DISCLOSURE?

Yes I know this is a foreign concept in the car business, but one that is truly effective. Here is how it works:

  • Sales people complete a walk-around on a customer trade with the customer prior to the appraisal. At this time, they take note of any visible imperfections and discuss the hows and whys of the trade and the desires in the new vehicle.
  • During the appraisal, Managers record and give a cash value to any possible reconditioning requirements. These can include: bald tires, dents & dings, ripped or stained interior, etc
  • A 3rd party source is printed, like kbb.com on the customer vehicle along with itemized reconditioning expenses.
  • The sales person, armed with the 3rd party source, goes back into the deal and presents the information in the following manner:

“Mr. Customer, KBB says your vehicle is worth X, and we AGREE. However, in order to get your car retail ready, there are some reconditioning expenses we have to take care of… you remember when we were walking around your vehicle and saw….”

Using a valid and well known 3rd party source verifies value and removes barriers that get in the way of making a deal. In addition, on average, you will under allow about $500 per trade- which equals BIG GROSS in the end.

You will be amazed at how easy it is to implement. The Cardone Group is a great proponent of this system and the company that introduced it to me. Go ahead and give it a try, you might just find extra Gross hidden in all your deals!

How do you handle the Trade-In at your dealership?

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    Jeff Kershner
  • July 4, 2010
Erin, thanks for the timely post. It's about time we have you on dealerrefesh :)


Handling the trade is a crucial part of the sales process and it's where most sales people and managers really fall short. It's the one piece where they feel they can continue to play the old school tricks to hopefully hold gross. Nine times out of ten, instead of holding gross on more deals, they loose the deal without realizing it. 


"Rarely do we take the time to explain our process on how we arrived at the value" - when I was on the floor this would drive me crazy. I would have to go back to the customer with absolutely no information on how I got to the trade value on their vehicle. Objections would come from the left and right. I swore if and when I sat in that chair I would provide my sales force with the tools to provide where the values were coming from, reinforcing the value we have placed on their trade.


Giving the customer a Full Disclosure on their trade-in helps remove the emotion and gets your customers thinking logically. And when you are armed with all the information, it's a lot easier to overcome the objections. It's all right there in black and white. CarMax is a great example on how this works. 


When I was working the desk, I really enjoyed using AAX for my trade appraisals. They had a great looking professional presentation you could review with the customer that offered the values from the different sources while placing your ACV in a voucher like print off. With an actual print-off from KBB, black book and the even the auctions, combined with the price and payment worksheet (4 square), your customers are now thinking logically rather emotionally. Bring on the objections! 


Erin, you mentioned Grant Cardone and his training. I always liked offering 2 numbers on the trade. The ACV minus the reconditioning. Make for a strong close on the trade.    
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    Ben Koller
  • July 5, 2010
I believe the "art" behind presenting a trade value and generating additional front end gross to a deal will be lost in relatively short time. The "science" of programs like AutoTrader's 'Trade-In Marketplace' will eliminate the ability and need to negotiate a trade value.


These programs will essentially provide the customer a guaranteed trade value based off of market data for his/her trade vehicle before he/she even arrives at the dealership. This will be very unfortunate for dealers as it means they will not be able to acquire vehicles for below market value regardless of how skillful they are at the "art" of negotiating a trade-in.


In this new market, all dealerships will purchase pre-owned vehicles for the same price and also sell them for the same price. Thus, there will ultimately be a default profit on all pre-owned vehicle sales. This default profit will be small as well. The days of a $4,000 front end gross profit on a pre-owned vehicle sale because it was skillfully acquired for well below market value at trade-in negotiation and then sold at true market value will be gone.


Selling more vehicles at a greater velocity (credit Dale Pollack) will be the only way for dealerships to generate greater revenue/profit.


This is just my two cents and opinion on where this market is going.
S
Great post. It all goes back down to building the value in yourself, your dealership, and your brand while also utilizing the right tools to your advantage.


@Jeff, you are completely right. It is always great to be able to offer two different numbers. It gives choices. We know that customers like choices. It also allows for the proper takeaways.


@Ben, you are also correct. We are seeing the used car business become a volume effort now with the Velocity strategy. It is a great strategy because it still allows for huge profits in the end. It also helps feed other departments in the dealership.
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    Bobby Preston
  • July 7, 2010
I know the itemized reconditioning expense sheet wouldn't be too complicated, but does anyone have any examples? Perhaps create a thread on the forum where we can post them?
R
Great points Erin, The trade is most likely the most emotional aspect of any car deal. One thing that I did while on the desk was to try and remove the "mystery" out of the appraisal. The customer has shopped at several dealers and has seen the sales persons "silent trade walk" in all of its variations.


As a manager I always took the appraisal as an opportunity to meet the customers prior to the pencil. I would Spend a few minutes sitting with them and asking valuable questions about their vehicle. I would explain how I would come to a value and ask their permission to test drive it and offered to take them with me. Most would decline.


Not only did this ease the tension, but it made the T.O. that much easier, since they already knew me. Having a third party source is also good to use, although I feel that most sources like KBB can be inconsistent. I agree with Jeff's assessment of AAX, the trade value tool is very convincing presentation.
S
Erin:

You are right on point. The days of over allowances and combining dealer cash and actual cash value to appraisal a trade are vanishing quickly. The most successful dealers going forward will embrace a better appraisal process using good real time third party data. With all the makes an models sold, there is a need to look at the market to determine an appraisal on those unfamiliar trades. When I started appraising most of the trades were my own brand, not today.There is a lot of cross-over and lots of makes an models, which makes accuracy even tougher at times.


Customer satisfaction with most appraisal processes in dealerships is not very high. Dealerships need to validate and justify their appraisal with the customer. Over 90% of the visitors to dealership's today have researched their trade, but we all know a lot of the data is not market reflective, because of inputting errors by the consumer, and sites offering outdated data. A Branded appraisal with the reconditioning explained will improve the customer's experience and set your dealership apart from the competition.


There are several tools to help, and I encourage dealers to investigate them. Cost and terms vary as does the data included, but there is a tool to fit every size dealership. I would encourage dealers to investigate these Appraisal Tools they will help you make better decisions and close more deals. Embrace the transparency that exists in today&#039;s market place. I was a retail dealer for over 30 years, and three years ago joined NADA to help develop an answer for this transparency.We surveyed dealers in developing our product. The common response was make it easy to use and affordable. AppraisalPRO is the answer to both survey responses. Check out AppraisalPRO <a href="http://www.nada.com/appraisal" rel="nofollow">www.nada.com/appraisal</a>
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    Chris
  • August 4, 2010
Well... If we&#039;re going to be selling under invoice and making nothing off of trades, I see the days of the &#039;salesperson&#039; numbered too. Seriously... There will be very little incentive for motivated sales entrepreneurs to pursue the automotive industry, when it will all be reduced to flats on everything. How many money motivated self motivated people will buy into that pay plan?
R
We use VAuto in our dealership. What we DON&#039;T do is use it the way suggested earlier in this thread. To justify a number. We DO use it to try and help our managers appraise vehicles other than the used car manager (or on the used car manager&#039;s off day). Your idea is a GOOD one.

The OTHER way we make gross is by selling other products. One of the dealers I worked at sold Tire/Wheel. We sell a key replacement warranty, etch, PolySteel all designed to help make gross on a thin internet deal.
R
Sometimes we just have to sell the car at our internet price, the customer has their own financing or pays cash. Other times, they buy everything offered. I even had someone beat me down to 300 below invoice but then lay down for an $899 PolySteel (cost is like $100 including undercoating!). It happens, Sales is a numbers game. If you don&#039;t ask you don&#039;t get. I even explained this to a 4th grader today selling girl cookies!

Accessories are also the key. I&#039;ve had pretty good luck with selling a &quot;middle&quot; trim level vehicle and then adding leather / heated seats for example. We have 25 or so Ford dealers who will sell a potential customer a Fusion at invoice (or less) here in Cincinnati. The secret is to build value in me, the dealership, our service department so they won&#039;t shop anywhere else. Or if they do, they&#039;ll come back to us for value.

R
Holding on the trade is great when you can do it. Of course everyone thinks their 200,000 mile Taurus is in Excellent condition and KBB says its worth $3000 more than it is (on a $1000 car no less) so we have to show them auction data, MMR, Black Book etc. The decucting for reconditioning is a great way to do it.
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