How to Define the “Right Money” for Any Used Vehicle

An age-old and elusive question in the used car business is, “what’s the right money for a car?”

I would submit that, in most dealerships and used vehicle departments, no one has a good answer. When I ask the question of a dealer or used vehicle manager, the answer I get most often is, “it depends.” It’s rare to find anyone who can clearly articulate what the right money for any vehicle should be.

Over the years, I’ve come to understand that our inability to answer the right money question leads to a lot of sub-optimal outcomes. If no one has a clear understanding of what the right money for a vehicle should be, chances are better than good that your appraisers and buyers are acquiring used vehicles for something other than the right money. In effect, they decide what the right money should be, based on whatever approach they use to define it for themselves. This is why dealers often worry that appraisers put too much into vehicles they acquire and too little into vehicles they miss.

This dynamic leads to the high degree of variability we see in the performance metrics dealers typically use to measure appraiser performance. Their Cost to Market and Look to Book averages are often all over the board. It’s only on occasion that reconditioning estimates captured in appraisals accurately reflect the work a vehicle needs. It’s why some dealers hold save-a-deal meetings, where they make  a second or third attempt to get the money right for a vehicle.

I’ve given our industry’s collective difficulty in answering the right money question a lot of thought. I’ve made it a central topic of conversation with dozens of dealers, and I’ve come to a singular conclusion: We don’t know what the right money for any vehicle should be because of an inability on the part of dealers to define it, based on their strategic retailing objectives, and bring this insight to every appraiser in every appraisal situation.

But now, there’s a better way.

My next book, Invested: The New Science, Strategy and System of Used Vehicle Investment Management, which I’ll be releasing at the upcoming NADA convention in New Orleans, details how dealers can use a new appraisal system inside ProfitTime GPS to define the right money for any vehicle and make sure appraisers know the right money whenever they evaluate a vehicle.

A big part of this story is the system’s use of data science-driven insights that tell you the quality of a vehicle as an investment at the time of appraisal. The system also knows the dealer’s strategic objective, whether they are going for gross, volume or a combination of both in a given month, and whether you need the vehicle or you don’t. With all that, the appraisal system inside ProfitTime GPS offers up a recommended appraisal range to help appraisers bring in the vehicle for what the dealer has defined as the right money. The system also gives appraisers flexibility to make deals, while letting everyone know when a vehicle has been acquired for something other than the right money the dealer defined and desired.

As I write about in the book, the system’s a game-changer for dealers because their new-found ability to define the right money for any vehicle, based on their strategy, means appraisers bring more vehicles into their used vehicle inventories for the right money. In turn, there’s less variability as appraisers evaluate vehicles, and less likelihood that someone will price a vehicle incorrectly because the money you paid for it wasn’t right.

Therein lies a topic I also address in Invested and will share in an upcoming post—how to prevent the right money from going wrong once you own a vehicle.

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