New York–based dealer CarCash relied on the old way of managing wholesale cars, which nearly cost the family its dealership.
A recent episode of CNBC’s The Profit examined CarCash’s struggling business. It wasn’t long before host and investor Marcus Lemonis identified two primary reasons why CarCash was bleeding money and on the verge of collapse: a flawed appraisal process and too much reliance on middlemen.
Beware of incorrect appraisals
There is no single great appraiser out there. Three experienced used car managers evaluating a 2005 Acura TSX with 74K miles could yield three different appraisals ranging from $3,700 to $5,000. Determining used car valuation is an imperfect blend of art and science.
Although experienced used car appraisers defer to time spent on the street, in the auction lane, or their personal network of buyers to determine a valuation, rapid market changes make it difficult to determine a real-time actual cash value (ACV).
Market report information and valuation guides like NADA, Galves, and Black Book are all incredibly useful, but they are just guides. None are writing you a check for your cars.
Marcus reshaped CarCash’s appraisal process to ensure that the customer was present during the appraisal process and could actually view how a car is appraised, as well as the elements that make and shape the valuation. This process was ultimately more consistent with wholesale market conditions and less impacted by consumers’ lofty expectations.
Watch out for middlemen
CarCash relied heavily on old-school wholesalers to buy its cars in bulk. Steady and consistent, they were the most immediate way to cash out of cars. These wholesale middlemen, however, were selling cars acquired from CarCash to other dealers, often at a margin of $500 to $1,000 per car—a margin that otherwise belonged to CarCash.
Marcus correctly realized that CarCash should be selling directly to other dealers. He cut out the wholesale middlemen, and worked with CarCash to develop relationships with the dealerships who were typical consumers of their inventory.
The simple solution
CarCash was able to turn around its profits by immediately addressing holes in its business. New solutions in the market can help your dealership fill holes also.
One new offering provides a mobile-based platform that allows for fast, easy, and transparent valuations to be performed live on the sales floor by expert appraisers. Consumers react well to seeing this defined and consistent appraisal process, and dealers love it too. And . . . these appraisers will actually write you a check.
How does it work? A team of appraisers place cash offers on each car, leveraging a nationwide network of dealerships that might want to purchase the car, which will get you the most aggressive offer possible. The dealer simply pays a subscription fee per vehicle, instead of spending time and money on transport, reps, recon, and just plain guessing to run cars at auction, or losing money through wholesalers.
By using one solution that allows you to hold gross on the sales floor, open margin in your wholesale business, and receive cash offers on every trade valuation you present, it’s easy to say goodbye to slim wholesale car margins and the costly trade appraisal game.
Jahon Jamali is general manager at The Appraisal Lane, a real-time used car trade network and communications platform. For more information, please visit www.TheAppraisalLane.com or download The Appraisal Lane app from the App Store (iPhone/iPad) or Google Play (Android). For immediate inquiries about The Appraisal Lane, you can also contact Jahon via email: [email protected].0
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