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Leedom Management Group, LLC Available Positions
Dealers Offer Inventory Insights
Appeared May 2013 - volume 10 - issue 5 - page 14
Article has been viewed 219 times.
There are a lot of inventory vendors out there and Jim Thompson, partner in a chain of nine J.D. Byrider stores in northern Florida, said he’s not having any trouble finding the inventory he needs to feed the 250 units the stores sell each month.
“We buy predominantly from wholesalers,” Thompson said. “We probably get 65-70 percent from wholesalers and the ret from wholesale auctions. He usually sources the vehicles form local auctions or those relatively near by.”
The right inventory at the right prices is the key to success in the buy here-pay here business and he doesn’t want to spend a lot of time looking for it. He said he looks for wholesalers who take the time to know and understand his business model and what the dealerships need.
“We want good cars, we want them to stand behind what they sell us and we need a good price,” he said.
It’s a simple set of needs, but working with wholesalers and auctions can be a complicated business. He said about 5 percent of the vehicles he buys from auctions or wholesalers have some sort of problem that results in a some negotiation.
“We do reconditioning ourselves, but some of the vendors can do recon as well,” Thompson said. “We also spend a great deal on reconditioning the vehicles to bring them up to our standards. We typically look for a vehicle in the $4,800 price range, but we will spend anywhere from $1,400-$1,600 on recon.”
Those high recon costs, he said, result in fewer headaches later on with consumers who are unhappy with their vehicle or face a series of mechanical or even cosmetic issues.
“If you want a vehicle to last the three year life of the loan and beyond that takes money,” Thompson said. “If this were easy, everyone would be doing it.”
Thompson said he considers the longtime relationships he has with his wholesalers as a competitive advantage, and not something he’d be willing to share publically.
“They typically get vehicles from franchise dealerships and off the street and from other wholesalers,” he said. “What works for me is they have the product and if there’s an issue they address it quickly, fairly.”
Thompson said he likes to focus on basic American-made cars and trucks, and he, like all other dealers, have exceptions to that rule and a “Do Not Buy” list that is non-negotiable.
Some vehicles, he said, with specific powertrains are prone to break downs and expensive to repair and best avoided. Everyone knows what those vehicles are and that’s why they can be picked up cheap, he said. “We just won’t buy them because they’re not worth it.”
Thompson said he hasn’t been able to bring himself to buy units for his BHPH lots online.
“I have to touch it, smell it and feel it,” Thompson said. “You can do that by looking at a computer monitor. I know some guys are doing it and say they have been successful, but for me, at this end of the market, I need to see it before I have it hauled 200 or 300 miles. I know with the higher-end units I’d trust it more. But I just can’t do it yet.”
Thompson said, overall, inventory seems to be in good supply and prices have dipped a bit and that makes things a little less challenging.
“Overall, it’s a good time to be a buy here-pay here dealer,” he said. “It comes down to how well you operate. The market is there., though we have seen an uptick in the market with subprime sales. We have seen some payoffs from finance companies, but that’s not the worst thing that can happen.”
New car sales are on the upswing, Thompson said, and that generates trade-ins. He said the price decline has averaged about $200 a unit compared to last year.
“That’s a far cry from where prices were before the Great Recession and the decline in new car sales, but it’s something.
Andy Swanson operates two Used Car Xpress BHPH stores, which move about 75-100 units a month, in Maplewood, Minn., just east of the Minneapolis-St. Paul area.
“We’re fortunate in that our parent company operates two franchise stores and we are able to get all of the trades we need from them,” Swanson said.
Most of the vehicles he gets are in the 2003-2006 range, but he’ll look for and sell clean trades with a 200 vintage or even a 1998.
“Vehicles need to last the life of the loan and if we can recondition a vehicle to our standards and believe it will, we will put it on the road,” Swanson said.
Swanson said he also sources from auctions and he has a dedicated buyer that both buys at auction and takes trades-ins to sell there.
“We have also had a good deal of success buying vehicle on Craigslist,” Swanson said. “During tax season we recently purchased 30 units in one month from Criagslist. It’s more work, and though it’s usually not the least expensive car you buy, it’s often one of the cleanest. They are the kind of cars that if a dealer took in on trade, he’d never take it to the auction.”
He said the time-consuming aspect of buying on Craigslist are “weeding through the dealer cars” and then taking the time to visit each individual buyer.
“You want to be the first one there, but that also means the seller won’t be very flexible on price,” Swanson said. “The other thing that’s interesting, is that the seller will tell you about every service problem, ever door ding, every repair the vehicle has ever had.
æTypically, they are very proud of the care and attention they gave the vehicle and want you to know about it.”
He also said there are a lot to choose from on Craigslist. He said there are 3 million people residing tin the Minneapolis-St. Paul region and that when he plugs in the $1,000-$5,000 value, there are a lot of hits.
“We Carfax everything we buy, so we catch most major problems,” he said. “There are guys out there who do nothing but buy and sell vehicles on Craigslist.”
Swanson said he’s very aggressive on recon and will spend about $800 per unit to make the vehicle meets the Used Car Xpress standard.
“If it doesn’t last the life of the loan you’re done,” he said. “The customer won’t pay for it, and you’re stuck with a car that won’t run.”
Swanson said he has purchased a few units from online auctions, but it’s only been off-rental units and at a much higher ACV than he usually purchases.
“Out side of that I’m not buying a unit online unless it’s close to factory warranty and I don’t care if it has an inspection and is green lighted,” he said. “At this end, I need to see it hear it and touch it.”