When “gut” meets “intelligence”
Posted by Dealer Specialties
Combining the power of “instinct” and “knowledge”
by Al Hess, General Manager – Field Operations & Sales
I remember when I purchased my first car. My sister had a friend who worked in the loan department of a bank. This friend had access to two books, a ‘black book’ and a ‘blue book’. I had no idea what those colors meant, but it had to be important and secretive, or they would have had more descriptive names!
I was told that these ‘books’ were used by the bank to determine vehicle value and loan amount, and this knowledge was considered inside dealer information. That ‘best friend’ relationship my sister had, and the knowledge it provided created a feeling of empowerment. Now armed with a plethora of non-consumer information, I was ready to buy a car.
Fast forward several decades and “amazing how the car buying process has changed!”, all for the better! Now that the playing field among consumers, banks and dealerships has leveled out, how are automotive retailers adapting?
Like most movements, there are stages of innovation, awareness, adoption and even resistance. The current ‘pricing analytics’ movement in the automotive industry is no different.
There is a segment of the dealer population that continues to rely on the ‘gut instincts’ of a market savvy used car manager with close ties to street wholesalers and local auction pricing. Their marketplace is viewed as ‘local’ and these dealers have built a successful business on knowing their customer’s needs. These managers’ likely buy and price inventory much the way they always have, with possibly some additional help from price points found from simple searches on a few popular shopping portals. While this practice has worked tremendously over the years, I anticipate this legacy dealer behavior is shrinking, as more dealers move to embracing real time market intelligence, robust information from total market overviews, and inventory analytics provided by the growing popular segment of pricing analysis tools.
There have been new businesses created around this movement, and more industry vendors adopting some form of analytical tools within their current product offerings to meet the diverse needs of the dealer universe.
The ‘friend at the bank’ has since been replaced by the internet. There is no more ‘inside information’ rather transparency and empowerment to all parties in the retail process. ‘Profits driven by high grosses due to higher retail prices’ are being replaced by ‘profits driven by accelerated turn due to the right stocking and the right pricing’. It is an exciting time for automotive retailers due to the growing insight and access into business intelligence provided by innovative industry vendors. While yesterday’s dealers could only rely on the strength of its used car manager, tomorrow’s dealers will derive their success from the rich balance of ‘gut’ and ‘business intelligence’.
A growing % of dealers have moved with passion to gain an early advantage, others are ‘fast following’, and others are ‘waiting to see’. Yet all dealers will eventually be forced to adopt some form of advanced science into their pricing and stocking methodologies lest they risk being out-smarted by their competition and their customers, and they may not even know it.
What has been your experience of combining the power of “instinct” and “knowledge” to evaluate inventory price points?
May 25 2010 03:16 pm | Product Updates
Gerald on 26 May 2010 at 12:33 pm #
Great post. I am hoping D.S. will be capitalizing on its considerable technological prowess to address this issue.
I recently worked for a dealer who used a dedicated pricing/measurement tool to find the optimal pricing for his vehicles. In the back of my mind I was wondering how long it would be until all dealers were doing the same thing nullifying our advantage.
Obviously, this won’t be the case, ever. Long story short, we were successful in culling the inventory down and getting his used inventory turn to approximately 40 days. Perhaps more importantly, we were able to use the software to build auction lists and where to buy the vehicle as well as giving us a chance to “over bid” on a trade vehicle and take business from the competition. The software permitted us to put more money on the trade knowing we were not going to be buried in a trade.
Instinct is great, but it is amazing how often we “forget” the bad deals we bought on instinct rather than on raw data and current intel.