Traditionally, the most important factor in pricing used vehicles has been the number of unsold days on the lot. The thinking goes that the longer the vehicle sits on the lot, the more value it loses, and the more the price needs to be slashed to move it out. But does it make sense, particularly in an era of profit margin compression? Not necessarily.
In a recent interview with Wards Auto, vAuto’s Dale Pollak discusses the company’s newest software solution, ProfitTime, which is part of the Provision platform. ProfitTime identifies the vehicles that offer the greatest profit potential and allows dealers more time to earn it. It also identifies the vehicles with the least profit potential that need to be sold the fastest. It’s a way, according to vAuto, of “ditching the calendar.”
“Dealers are pricing used-car inventory irrationally,” Pollak told Wards Auto. “They are taking cars with the lowest ROI potential and pricing them as if they want to hang on to them forever. And they are giving away the cars with the greatest ROI potential.”
The new process begins when dealers take a vehicle in. ProfitTime uses an algorithm to determine profit potential, allowing dealers to understand if this is a vehicle to hold onto or one to move quickly off the lot. It also helps dealers determine what to pay for the vehicle to maximize its retail profit potential. ProfitTime assigns every vehicle a value: Platinum, Gold, Silver or Bronze. The scores help dealers determine how quickly they need to sell each vehicle to optimize their gross, sales volume and turn based on market demands.
Pollack notes that there are other considerations for a vehicle’s ROI potential rather than just time on the lot and considering these elements can expand profitability.
“One, how right you own it, or how much you own it for relative to its average retail-market price,” he told Wards Auto. “Two, its market-day supply, or how much the market likes it in relation to supply and demand. Three, its retail-volume throughput. So if you get a car that’s really right, acquired cheaply relative to its likely retail transaction price, and it’s got high demand and low supply and it is a high-volume car, it would score high. That’s a platinum car with great strength.”