Getting Good Inventory
Dealer inventory sourcing has become a huge topic and challenge for most used car dealers, especially small to medium-sized independent dealers. For the past several years, family-owned and operated dealers have experienced a dramatic shift in their ability to acquire the best-selling, highest quality vehicles at a profitable price through the two traditional sourcing channels - wholesale auctions (off lease, bank repos, dealer-to-dealer, fleet) and private owners (trade-ins, instant cash, lease buyout). In a 2019 dealer survey, nearly 75% found it more difficult to source inventory they wanted and needed. That difficulty has been magnified exponentially since the arrival of the 2020 global pandemic and the 2021 new car chip shortage.
The Battle Lines
Today, the biggest industry forces driving the vehicle sourcing challenge for most dealers come from a handful of "retail goliaths" like Carmax, Carvana, AutoNation, Penske, Lithia, and others, and from "rental car giants" like Enterprise, Hertz, and Avis. The key players in both groups (retail and rental) have greatly intensified the battle to grab up a shrinking number of the most popular models. Collectively, they have "boxed out" many smaller dealers at the traditional wholesale auctions by bidding up prices on the best vehicles to historical levels. Additionally, Carvana recently purchased the nation's 2nd largest dealer auction company, ADESA Auctions for $2.2B to expand their access to inventory and channel infrastruture. The retail goliaths have also doubled down by greatly intensifying their efforts to source more vehicles directly from private owners.
Rental Car Companies
Traditionally high volume, new car fleet buyers, the rental giants have become far more aggressive "hands in the air" auction buyers of low mileage, late model used vehicles to keep their rental fleets full. Unlike car dealers, their business model is not necessarily, "buy low, sell high." Rather, it now seems to be, "whatever it takes to have cars to rent." Once the new car chip shortage improves and pent up retail demand is cleared, rental car companies are expected to exit the used car sourcing battlefield. In 2020, the Top 3 rental car companies had approximately 1.9 million cars in service in the United States (Enterprise 1,100,000; Hertz 430,000; Avis Budget Group 350,000).
New Car Franchise Dealers
Similarly, due to the chip shortage, new car franchise dealers have been forced to rely more heavily on used car inventory sourcing than ever before to supplement their front end business (vehicle sales). Some franchise dealers have received extra help with used vehicle sourcing from their manufacturer who unilaterally implemented restrictions on lease-end options where customers could only return their vehicles to or purchase them from an original manufacturer's franchise dealership (i.e. Honda leases returned to Honda dealer only).
Used Car 'Goliath' Dealers
With their deep Wall Street pockets and high-volume-high-margin, tech-savvy omni-channel sales models, the retail used car goliaths have pretty much taken over and "bullied" smaller dealers at auctions. The auctions themselves are doing a fine job with technology and convenience for all dealers, big and small, but prices on the best cars remain at all-time record high levels and buyer fees are noticeably higher too thanks in part to the buying frenzy.
In 2019, a new two-front strategy emerged as the retail goliaths shifted their attention to dominating a relatively untapped inventory source – the 14 million private seller cars sold annually. It is obvious from the barrage of TV ads, strategic partnerships, acquisitions and the latest sourcing statistics that Carvana, Carmax and AutoNation are now duking it out in America’s driveways, and online private seller platforms. Carvana teamed up with the largest online used vehicle marketplace to get first crack at their private seller 'Instant Offers' program. Of course, Carmax (purchased Edmunds.com for $404 million in 2021) and AutoNation (new aggressive advertising campaign targeting Instant Offers) have already launched counter strikes to stay in the fight, so like the auction battleground, independent dealers should expect to see the private party channel continue to be highly competitive and further intensify. The big winners from the current sourcing battle could be the retail goliaths. And, that typically leads industries in the wrong direction with a handful of key players controlling the supply channels and dictating prices and product availability.
Realistically, independent used car dealers will continue to struggle if they choose to go toe-to-toe against the goliaths on either front, and they can't choose to simply sit this one out and wait for things to "return to normal." The new normal is here. Survival comes from innovating, getting creative, forming new alliances and trying new things.
What are other dealers doing to reclaim access to their share of quality vehicles? Many are turning to vehicle sourcing channels where the goliaths are not paying attention.
Secret Weapon for Independent Dealers
Two old sayings always hold true: "He who has the cars, wins the game," and "You don’t have to own it to sell it and make money.”
One of the growing trends in dealer inventory sourcing is through a non-traditional channel called “retail consignment.” Dealerships that now offer a professional consignment program for their customers enjoy four primary benefits:
This seems too good to be true, but it is real - consignment inventory involves no capital investment, no floorplan cost, and no reconditioning or repair costs. Dealers control the eligibility criteria for which vehicles can be enrolled in their consignment program and the criteria can match dealer-owned inventory to maintain consistency and brand. Through effective promoting and messaging, many consignment dealers receive high quality, one-owner, low mileage, hard to find, high-end, and best-seller models with consignment. How is that the case? Because they gain access to a niche group of private sellers that refuse to accept wholesale offers for their high quality vehicle from one of the goliaths or local non-consignment dealerships.
There seems to be a big myth among non-consignment traditional dealers that you can’t make money with consignment, or if you do it is not enough to offset liability or hassles. This has been debunked. Commission fees, cross-selling and upselling opportunities and cost savings (holding costs, floorplan costs, market risk, transportation costs, reconditioning costs) generate profit margins per unit equal to or better than those of dealer owned inventory. Unlike owned inventory, dealers never lose money on the sale of a consignment vehicle. Just ask one.
Faster Turn Rate
Most dealers that offer consignment have developed a unique retail pricing strategy for their consignment inventory that is based on creating a "triple-win" for the seller, buyer and themselves. Consignment dealerships tend to have higher overall buyer traffic to their website and dealership and have a faster overall turn rate, including their dealer owned-inventory.
Two customers per consigned vehicle – Seller and Buyer. Doubles your repeat and referral business from more customers. Offering consignment also builds happy and loyal long term customer relationships. People want to do business with companies that provide more options for meeting their needs. Your customers have unique needs on both sides of vehicle ownership, as buyers and sellers, so, why not cater to those needs and become their trusted go-to dealer for all of their vehicle needs? It really does work.
We encourage all used vehicle dealers to explore the retail consignment option starting with a visit to Retail My Ride where they will discover 1,127 consignment dealers in 48 states that are proving consignment is a viable, profitable model and a deep, untapped inventory source.
By example, one dealer group that has emerged as a leader in automotive retail consignment is CarLotz. In 2011, three Harvard business grads launched, “The Consignment Store for Cars.” They went public in 2021 (Nasdaq: LOTZ, $LOTZ) and currently own and operate 22 dealership locations that are sourced largely by consignment. Their rapid national expansion continues in 2022. Ironically, some refer to CarLotz as the 'Carmax of Consignment'.
How to Become a Consignment Pro Dealership
About Us - Your Source for Consignment Inventory
Real Experiences From An Auto Consignment Dealer
Automotive Retail Consignment Dealers: Unique Experts with a Passion for Selling
CarLotz Joins Retail My Ride to Source More Consignment Vehicles During National Expansion