For over a year now, I have talked about record high used car prices. I predicted they would not remain so high, but that just isn’t the case. They are still at elevated levels with no end in sight. A late March 2012 auction report showed prices even higher than a year ago in every segment. This is great news if you have something to trade, but not great news if you are looking to purchase a used car. Often I recommend people buy new instead of used, sometimes it just makes the most sense.
Used car prices often seem to confuse people and I am often asked how much a dealer can come off of the price they have on the Internet on used vehicle. Most consumers have found the Internet to be a great tool to research, and in some cases, a way to gather information on their next vehicle. It can be quite confusing too.
Remember too that car dealers use the Internet as a major tool to sell cars. The savvy dealers are always looking for ways to attract people to their websites, but it goes much deeper than that these days. Dealers can get real-time used car values from auctions all over the country in just seconds. These sites are not available to the public. This is why for a couple of years, I have talked about how inaccurate Kelley Blue Book and the other sites are, because they are never current, especially in a very volatile used car market.
One tool many dealers use to list used cars is software that allows them to look at every similar car that is for sale in their area, their state, or all over the country. This software will tell them in great detail the going price of cars like theirs BEFORE they actually put it on their websites or one of the consumer sites like cars.com. A large number of dealers are using this software and it is allowing them to price their cars to sell quicker and without the traditional haggling generally associated with a used car purchase.
There are a number of these programs out there for dealers, and it keeps them from over or under-pricing their used car inventory. For the first time, they can price with confidence.
Until recent times, pricing a used car was all over the board. Dealers would price cars based on what we owned them for. For instance, if a dealer owned a car for $20000, and the goal was to make a $1500 profit average per car, they would price the car at $22500 in hopes it would bring $21500. Nothing real scientific about that. If a dealer around the corner owned a similar car for $1000 less, he could advertise it for less and probably sell his car faster.
Today’s dealers have the tools to be competitive from the first day they advertise a car on-line, in the newspaper, or on their websites. Dealers using this software are reporting an increase in used car sales of 30% or more since they began using this type of technology. They now price cars based on the current market without regard to what they own that car for. You see, in the car business, selling a car fast is the key to success.
This will be problematic for some consumers, however. Some still think that unless the dealer will come off $2000 on their advertised prices, it’s not a “deal”. Those folks are going to be mighty frustrated, those days are over. These buyers will pass by a GREAT deal because a dealer is firm on their pricing, they now have proof their car is not too high.
Predictive pricing is sweeping the auto industry even as we speak, and the systems will get even better as time goes by. Everybody always talks about what a great experience they have at the places that don’t negotiate. Get ready for that at all your local dealerships too, it is here.