What Is My Trade Worth

It is one of the first questions that customers ask, but it is the wrong question. What customers should be asking is, “What is my trade really worth.” Sounds like the same question, but one word can make a huge difference. It can be the difference between a customer getting a truly good deal and a customer being made to believe they are getting a better deal than they are. There are a few keywords and some jargon to listen out for such as “showing” and “ACV (aka: Actual Cash Value).”
 What is meant by “showing” is that the dealer wants to give a certain amount for a trade-in, but they want to show the customer they are giving more. As for actual cash value, it is the price a dealer might actually pay you in cash for your vehicle even if you do not buy anything from them. The difference is that at a best price store actual cash value is something said directly to you. At a negotiable price store, it is just jargon that would only be heard whispered in smoky back rooms.
Here is the math for 2 completely different deals:
Deal 1:
Sticker Price: $20,000
Actual Cash Value of Trade-In: $10,000
Difference: $10,000
Deal 2:
Sticker price: $22,000
Showing Value of Trade-In: $12,000
Difference: $10,000
If you look at only the botton line, these look like virtually the same deal. In each deal the customer is going to pay $10,000 after trading in their vehicle. The second might even look like a better deal, because it seems like the customer is actually getting a more expensive vehicle and getting more for their trade. If the vehicle in Deal 1 and Deal 2 are the same vehicle though, what gives?
There is a difference between sticker price and an actual sales price. In Deal 1, the sticker price is $20,000 and the actual sales price is also $20,000. In Deal 2, the sticker price is $22,000, but the dealer is willing to negotiate the sale price to $20,000. Instead of simply selling a customer the vehicle for $20,000, telling the customer they are getting an actual cash value of $10,000 for their trade, and leaving the difference at $10,000, someone at the dealership realizes that the customer believes their vehicle to be worth more than $10,000.
To mitigate this situation, the dealer continues to state the sale price at $22,000 and shows they are going to give the customer $12,000 for their trade. When a dealer states that all of their vehicles, both new and used, are at their very best price available they cannot show trade value. They can only give actual cash value, because there is a tighter profit margin. A negotiable dealer has a profit margin that fluctuates more due to how much they mark-up they may have in a vehicle above the best price they woud be willing to sell a vehicle at.
As I said in my last blog post, every dealer knows what their best price is. Some just hope you will pay a little more. The same goes for trade-in value. Every dealer knows what your trade is worth. Some just hope you will take a little less. Just one little word can mean a lot. How about you? Have you ever heard a dealer tell you they are “showing” you a value? Leave a comment if you have ever picked up on it.
Advertisements

Why Even a Best Price Can Sometimes Change

One of the comments often heard by both customers and competitors (and remember that I was one of them) is that the “best price” is not really the best because prices can still be lowered. Yes, you will hear that the best price is really the best price today which means that it might not be the best price next week or next month. There are a few reasons for this, none of which debunks the best price strategy. Long story short: things change.

The things that can change can be big or small. A small change can simply be the number of trade-ins on a specific make or model. For instance, Toyota customers are very loyal and trade for the newest version of a make and model with the frequency of a college student and an iPhone. If we get several Rav4’s traded in for new models we will want the oldest stock on the lot moved out to make room for the newer ones.

Another example of a minor change is how long a vehicle stays on the lot. As I mentioned in my last post, there is a random phenomena that occurs that can cause a vehicle to sit on a lot longer than expected. The longer that vehicle sits on the lot, the quicker that dealer will want that vehicle to move. New inventory keeps people excited and intersted. If you come to the lot several Sundays in a row (yeah, we know you’re avoiding us) and keep seeing the same inventory, you would not come back the next Sunday.

An example of a major change is higher rebates. Once the newest model year is released the manufacturer will increase rebates on the previous model year which can make them cheaper and not significantly more expensive than the pre-owned models. If a customer is looking at a pre-owned GMC Terrain and it is $21,500, but they can get a new one for $24,000 (only about $45 a month more) there is a good chance they will go with the newer model, so the only way to keep the pre-owned inventory fluctuating is to lower the price.

There is also this funny little thing called Capitalism. It is all about what the market will bear. If the entire market, and not just a specific dealer, gets flooded with inventory dealers will start lowering their prices to keep their inventory moving to compete with other dealers. The same build up of inventory can occur if you do not keep up with your competitors.

Our dealership is always striving to give you the best price it can offer considering all market conditions. What this means is that even if our price is X amount of dollars lower than our competitors today it may not be that way next week if we are not careful, so we have to keep up with the market to keep offering you a significant discount over everyone else. Conversely, our competitors know their “best price” too. They are just hoping that you pay a little more.

Ultimately then, it is our duty to keep track of the market and continue to keep our promise to our customers; even if it means the best price for you is not the best price for us.

My First Week at a Best Price Store

After 15 months of working at a dealership with negotiable prices and commissioned salespeople I recently moved to a store that offers their best price right up front and who has non-commissioned salespeople. It is hard to understand how massive of a change this is to someone outside of the business, but believe me it is an enormous change. I will delve into the differences between the two in a later post, but I decided to make this post more about me experiencing the change, breaking down my old perceptions, and working for an entirely different company with different perspectives.

I will be honest from the start. I was bred to believe that the “best price” story was a false narrative and gimmicky. Although in theory I felt the dealership’s way of doing business fit my approach best I was worried that I might be making a mistake and falling for a marketing ploy. That is not because my previous employer (who was great to me and whom I have great respect for) had negative things to say and brainwashed me to think this way. Frankly, it is just what you have to convince yourself when the store you are working at is selling 40-ish cars and the guys up the street are selling 100+. At the same time, anyone who has asked me how I felt about the “best price” concept will tell you though that I have always done my best to stay neutral. I have always simply shrugged it off with a casual, “Well, everyone has a different way of doing business” or “They both have their benefits.” Now that I have seen the other side though…. I still say they both have their benefits. You thought I was going to go on an epic bashing spree there didn’t you?

The truth is, they do both have their benefits. Here it is: You can possibly get a better deal at a negotiable dealer. (Boss, if you’re reading this, bear with me). You might be able to get a better if you are a hardcore negotiator, if you catch the negotiable dealer at the end of a bad month, or if you happen to like the vehicle that dealer hasn’t been able to get rid of for 6 months. I should note on that last one that I’m still not bashing here. I’ve seen very good vehicles sit on the lot for an unreasonable amount of time. If I could figure out why that happens I’d be rich, but it does. All dealers struggle with this phenomenon. Even a best price store will lower the price of a vehicle if it sits on the lot too long (why a lowered price does not throw a rod into the best price concept will come at a later date). 

What this all comes down to is a preference. If you like to negotiate, you know that negotiable dealers are easier to deal with at the end of the month, and you like the vehicle that has been on the lot for 6 months you should go for it! I have come to realize though that a best price dealer does not necessarily think they are going to get every single car deal. The concept is based on the idea that on a consistent basis you can count on being able to get a fair deal on a vehicle without having to negotiate and find the right car on a Tuesday at the end of the month where a dealer is having a bad month and needs to get rid of a car and the wind is blowing out of the east and there is a 60% chance of rain and they broke a mirror the night before while walking under a ladder and…. you get the point.

As I have said, having worked at a negotiable dealer I thought this was all hippie stuff. I even thought for certain that it would not take long before the salespeople and managers were telling me behind closed doors, “Yeah, this best price stuff is hogwash and the owners are screwing us.” I am not even exaggerating. I was shocked to find that the staff really felt good about what they did. They truly bought into the process; even the people who were there before the store changed their approach. Anyone who has ever been through such a huge organizational change can attest to how difficult this is to accomplish. I even took the top salesperson out to lunch fully expecting them to tell me that the story was a crock, that they felt like they were getting taken, or that they did not even adhere to the company’s practices, and that they were a rogue vigilante who still did things their own way. Nope.

I have found quickly that not only do the employees and managers feel this way, but that our owner, Dan Anderson and his wife Stephanie, truly believe in what we are doing. And after my first week at a best price store, I can rest easy now having the confidence that I believe it too.