Setting a strategy for sourcing stock in a shortage
3 essential steps for replenishing stock in a busy market.
With forecourts reopening this week, we’re already seeing feedback from retailers that replenishing stock is becoming a challenge. This is likely to be the impact of sales performance returning to near-normal levels, overlaid by some retailers gearing up for a return to the market.
With a deficit of close to half a million transactions to recover from Q1 2021, this situation isn’t likely to improve any time soon. We’re expecting to see a strong surge in demand from consumers who had delayed their purchase in the coming weeks, so we need to address what retailers can do to mitigate the problem.
Here’s 3 easy to follow steps that will help you establish a winning sourcing strategy in a busy marketplace
Following the first lockdown, we witnessed 3 months of record sales performance on used cars, which also came hand-in-hand with a supply shortage. On that occasion, it took time for the wholesale ecosystem to get moving again and for the auctions to adapt to operating online only. Whilst it’s highly unlikely the wholesale market will experience the same issues this time around, it is reasonable to assume that competition for stock is going to be extremely high in the coming months, which in turn leads to an inflation in the prices you pay at the auction or through other wholesale channels.
The best way you can prepare, is to plan for the worst. Assume that stock will dry up through your usual channels or that it will be too expensive to achieve your desired margin after vehicle preparation costs.
You need to set out a strategy for how you plan to source stock in a shortage and here’s how:
Use market insight and retail check to identify vehicles you need to source – think beyond your normal strategy
Use dealer auction to target specific stock from other retailers, Manheim and private sellers
Use Guaranteed Part Exchange to tap into the profit opportunity available on part exchanges
1. Using Auto Trader tools to identify the vehicles you need to source
If you’re sourcing stock that falls outside of your usual stocking policy or if you’re paying over the odds for stock that is part of your stocking policy, you need to be confident in what you’re buying. It’s likely you’ll need to make sacrifices on at least one, if not both if you’re going to keep your forecourt replenished. Therefore, having a consistent view of supply and demand in your local market, plus an estimate on how long it will take to sell the vehicle with your desired margin will be key.
Market Insight
If you’re open to looking for stock outside of your usual stocking policy, you can use market insight to help you identify the opportunities that exist in the market. This tool gives you a live view of market health (supply Vs demand) and pricing trends by vehicle make, model, body type, fuel and age. So, if for example you specialise in Germanic brand hatchbacks, you might want to look at coupe’s and convertibles as we approach the summer months. And right now Audi TT convertible’s with a diesel engine have a market health score of +128% for the national market*. What does that look like in your local market? Check it out, it’s up to you to find the opportunities that exist, then make a list of the vehicles you need to source.
Retail Check
Once you’ve identified a vehicle you want to source, it’s absolutely essential that you use Retail Check to ensure your buying the right car, at the right price. Especially if you’re buying stock that you wouldn’t normally buy or if you’re paying top money for it. Retail Check will provide you with insights for that vehicle, specific to your forecourt location including retail rating and average days to sell. It will also allow you to list additional spec for a more accurate market valuation, before helping you set a maximum buy price in order to achieve your desired profit margin.
2. Using Dealer Auction to target specific stock
You’d be right in thinking that during a stock shortage all wholesale markets are likely to be more competitive, resulting in price inflation. The difference with Dealer Auction is that it’s a trade only platform and it’s not just wholesale stock available, meaning it’s a great tool for targeting specific stock you’ve identified as part of your sourcing strategy.
There are 3 ways to source stock on Dealer Auction:
Trade to trade auctions – Dealer Auction provides a platform for retailers to trade stock between themselves, acting as a moderator between buyers and sellers to facilitate trade deals without the need for unnecessary vehicle movements and logistics costs.
Manheim auctions – You can see all the live wholesale auctions available from Manheim alongside Auto Trader retail metrics such as live market valuations, retail rating, average days to sell and profit opportunity
Private adverts – Dealer Auction lists all private stock available on Auto Trader and the profit opportunity for each vehicle. You can see how long the vehicle has been for sale, as well as key details that would impact the market valuation such as service history and number of owners.
The biggest benefit to sourcing through Dealer Auction is that it has Auto Trader retail metrics and valuations built in, with no disconnect between the market valuation and the live retail market, helping you to make assured sourcing decisions quickly and conveniently,
3. Using Guaranteed Part Exchange to tap into the profit opportunity available on part exchanges
If you’re struggling to replenish your forecourt despite making some adjustments to your sourcing strategy, you should consider your approach to retailing part exchanges. Part exchanges are the quickest way to replenish your stock and can offer a large profit opportunity on resale. However, it’s likely you’ll have to compromise on your stocking strategy, especially for things like only selling vehicles with full service history or vehicles with less than 60,000 miles.
During the stock shortage after the first lockdown we saw this shift in sourcing behaviour from some of the biggest franchise dealer groups. They identified the demand for vehicles at the cheaper end of the scale and as many of them were struggling to source stock, they changed their approach to retailing some part exchanges, allowing them to sell used cars outside of the usual manufacturer approved schemes.
Robert Forrester spoke on one of our webinars with Auto Trader COO, Catherine Faiers about the topic and said at the time:
“The place to get cars, clearly could be part exchanges, it’s actually probably the best place to get them”
If retailing more part exchanges during a stock shortage is an option, it’s worthwhile signing up for our Guaranteed Part Exchange (GPX) product and building it into your processes for buying stock from customers. GPX is a tool that lets you or your customer appraise a part exchange on Auto Trader, providing a guaranteed buy price based on the appraisal. The price will always be below the trade valuation and will change based on the condition of the vehicle, which you validate as the retailer before agreeing to the deal. Once the deal is agreed, you can either keep the car and retail it for a profit or you can pass it on to Manheim who underwrite the deal and pay you the guaranteed price.
Once you’ve signed up, customers can access the tool from your Auto Trader adverts and you can ask them to complete an appraisal prior to arriving at your forecourt. This gives them an independent valuation for their vehicle from a brand that they trust and you time to consider if you want to retail their part exchange.
In Summary
In anticipation of a busy April and May we would urge all retailers to contingency plan for a stock shortage. Establishing a sourcing strategy that allows you to replenish stock quickly, whilst maintaining margin will be key to recovering lost sales in the coming months and there’s 3 easy to follow steps for how to do that:
Use market insight and retail check to identify vehicles you need to source – think beyond your normal strategy
Use dealer auction to target specific stock from other retailers, Manheim and private sellers
Use Guaranteed Part Exchange to tap into the profit opportunity available on part exchanges