Car Dealers Use Data to Optimize Buying and Selling in Today’s Volatile Market

With the current shortage of used vehicles, businesses that buy and sell cars often must step outside their familiar territory and look at autos they don’t know very well and previously wouldn’t have considered buying.

That has added a new challenge to a business that’s already complex. In order to make a profit buying and selling used vehicles, businesses must be able to identify a car down to the trim level, learn the history of the individual vehicle, know the value a bank will approve a loan for, and be up to date on the trade-in, wholesale and retail values.

“As a dealer in the trade, when you’re looking at that and you’re thinking about what you should really sell this thing for, you’re trying to make sure you don’t give it away but you don’t want to sit on it and not turn the car,” Rory MacGregor, head of sales and marketing for Carbly, told PYMNTS.

Eliminating Blind Spots With Data

Carbly helps meet this need with digital tools that help dealers make data-driven decisions. One is a vehicle identification number (VIN) scanner that gives a detailed view of the vehicle and its equipment. Another is a platform that brings together in one place the data sources to which the dealer subscribes, including vehicle history reports and vehicle pricing data.

“We always advocate for more data because that leaves fewer blind spots,” MacGregor said. “The car industry really is all about maximizing your profit potential per unit, and if you can make little tweaks, just $100 a unit over the course of a year greatly improves your success as a business.”

Eight different sources of vehicle pricing data are commonly used in the industry. For example, J.D. Power tends to be used for loan underwriting by banks east of the Rockies, while KBB is used by those on the West Coast. In the area in between, there’s overlap between the two data sources.

Dealers also use other data sources for trade-in, wholesale or retail prices, sometimes based on their personal preference. They also use vehicle history reports that include information about collision damage and repairs.

“We bring everything they need into the same place so that they can be expedient in what they do without having to jump across multiple platforms,” MacGregor said.

Coping With Market Volatility

The number of data sources buyers use varies from zero to eight, but the average user of Carbly subscribes to three. MacGregor said that subscribing to all eight data sources would cost dealers less than the fees they pay on one vehicle purchased at auction.

“If you had that much data, the chances of you making a mistake and either overpaying or not stepping up and bidding enough to buy a car with a great profit potential are slim to none,” MacGregor said.

The current vehicle shortage has not only forced professional buyers to consider vehicles they wouldn’t have looked at before, but also driven prices to historic highs. MacGregor noted that this upward trend in prices will inevitably cool off.

Read more: High New and Used Car Prices Keeping Pedal to the Metal Until Production Catches Up

“That’s where it’s imperative that you pay very close attention to all of your trends because you don’t want to get caught on the wrong side of that,” MacGregor said. “You don’t want to get yourself in a situation where you’re into the vehicles for more than what the market will bear.”

Understanding the Ceiling Imposed by Price Transparency

Beyond the pandemic-driven shortage, there’s also been a longer trend that has boosted the need for vehicle pricing data: Over the last decade, consumers have become more and more informed.

It used to be that dealers could buy at sell vehicles at the prices they chose, because consumers had no other knowledge of the market value unless they drove around to several dealerships. Today, on the other hand, consumers can go online and instantly find current values.

“So, you can’t price a car based on your desired margin anymore, you have to understand all of the angles and you have to understand what the ceiling is before you even enter into the market,” MacGregor said. “Now it demands a very data-driven approach.”