Page 14 Vol. 16 No. 5 Classified Intelligence Report
BY SHARON HILL
Since Craigslist began charging U.S. auto dealers $5 per listing, revenue has soared and the site delivers better results.
Craigslist
will generate automotive revenue of $53.7 million this year in the
cities canvassed by the AIM Group. That’s up one-third from 2014. We
estimate another $20 million in additional markets.
Not
all dealers stuck with Craigslist once they had to pay, but we’ve heard
those who did are finding better responses, higher quality leads and a
positive return on investment.
Matthew
Brown, founder of the LotVantage classified listing application, talked
with the AIM Group one month after fees began in November 2013. He
predicted the charges would “legitimize Craigslist and clean up the mess
of spammers, duplicate vehicles and traffic leachers.”
He was right.
“Fees
definitely changed the [automotive] industry on Craigslist overnight,”
Brown told us recently. “Many dealers initially reacted by sitting on
the sidelines. That was great for those who didn’t, because the amount
of inventory got annihilated. When listings were free, 15 to 20 minutes
after posting, your ad became two to three pages deep because of spam
and the placement of fake vehicles up to 25 times a day. A disreputable
dealer’s inventory of 50 vehicles became a thousand listings. With the
introduction of fees, those companies had a rude awakening and
disappeared.”
Page 15 Vol. 16 No. 5 Classified Intelligence Report
Dennis
Wagner, 26-year CEO of Denny’s Auto Sales in Lexington, Ky. and founder
of training firm All Things Automotive Inc., agreed.
“When
listings were free, ghost posters – fake listings – were everywhere,”
Wagner told us. “They would bury your inventory. No one would ever see
it. While there is still some of that, Craigslist finds it pretty
quickly. And, while many dealers try to sneak their inventory in as
private- party listings Craigslist discovers that, too. They regulate it
pretty heavily now.”
Brown
believes that most legitimate dealers are back advertising on
Craigslist. That’s because Craigslist works for them, and LotVantage has
proven that.
“We
have metrics, and a phone number that tracks the number of leads for an
ad,” he said. “We’re finding sales success at the rate of one good lead
per ad, so they’re paying a low $5 for each Craigslist lead.”
Wagner
said that many dealers have returned to Craigslist because it made
economic sense. "Third-party leads cost about $20,” he said.
Wagner
has actually increased his Craigslist advertising since the fees began.
“My ROI is absolutely positive now,” he said. “The lead quality has
gotten a little better as well.”
Brown
cautioned that success depends on moderate vehicle value, with asking
prices of $15,000 or less bringing the best results.
“I
wouldn’t want to tell a new Ferrari dealer that Craigslist is the place
to put his money,” he said. “But for the mass-manufacturer dealer with
pre-owned inventory, Craigslist can be great.”
Wagner
doesn’t rule out advertising an occasional high-end vehicle, especially
if it’s a hard- to-find car or truck, or if the dealer offers sub-prime
financing.
“If
you offer financing you can sell a $50,000 car on Craigslist, though
you will probably get twice the response by advertising a $6,000
vehicle,” he said.
Dennis Wagner of All Things Automotive said Craigslist's fees for U.S. auto dealers has eliminated most fake listings.
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We
all know that the book values drop drastically every year at the end of
the Summer selling season, and they will continue to drop steadily
until December or January, and then level off through Summer, Right? We
have all been there. It happens every Fall.
So..
"You have never seen this happen before? You have kept your used car
inventory on a strict 60 day turn since 2010 without any problems? How
could you possibly have seven hundred thousand dollars of bone-chilling
"WATER" in your three million dollar used car inventory?" I could barely
believe what I was hearing. Could this really be happening again?
Then
it hit me. They really hadn’t seen it before. It was before their time.
In reality, many of the managers are now young enough that the new
“norm” is all they have experienced. I can assure you that the new or
false "norm" experienced during the past 5 -6 years will not last. It
has given us a false sense of security that we can gamble carelessly, a
little more.. a little more and a little more, with our used car
inventory. Then reality returns after a 6 year absence, in which many
inexperienced used car managers thrived under "norm" conditions, and now
It's over!
Prior
to 2008, this was an annual occurrence. However, I don't recall them
dropping for quite as long as they have this past year, and the chunks
were much smaller. I will never forget the Fall selling seasons of the
late 80s - early 90s, and me watching closely as the used car manager
prepared the used car inventory for the annual book drop. He would never
wait until the first snow hit or the temperatures fell below freezing.
He always said "Never go into Fall carrying any dead weight. Get rid of
all of the "WATER" or it will freeze up. You always want to run 'Lean
and Mean' heading towards Winter." That really registered with me and
has stuck with me through the years. The "Fall" book drop was as certain
as death and taxes, and, Yes, it happened- Again. That is largely why
my used car inventory always ran on a 30 day turn, and why my gross
profit on used cars were always super strong.
For
many it seems like your used car inventory is Frozen. The pool of
"WATER" has risen to the top of their used car inventory at the end of
November / December and frozen solid – Again. Like it always has. As
usual, after three straight BIG book drops, the phone calls and emails
started coming in.. Especially from the younger dealers, GMs and Used
Car Managers who have never dealt with the Fall drop. It is certainly a
scary time of year for all of us, and a beginner could get completely
lost very easily.
The
questions were much the same. “Have you seen the new books yet? Can you
believe they dropped again? Will they get any lower? What should we
do?”
I truly
feel bad for these new managers, and dealers, but I have been warning
dealers since late April of 2014, and have discussed it at length with
many others. Most all ignored warnings concerning the severely flooded
used car market on several occasions. The quantity has finally returned
and is no longer an issue. The “fall” was coming and if dealers didn’t
have their inventories leaned out, standing tall, and priced on the
money they were going to get hurt. Maybe they would have listened if I
had sent them all a video.
To
me, the signs were there, and there was no reason to expect it not to
happen again. The lease returns were at near record highs, the rental
car companies were flipping their entire fleets at a more rapid pace to
cash in on strong profits, and with new vehicle sales volume back to a
17 million SAAR, there were loads of trade-ins coming back to dealers
very rapidly. Then you add in a model year change, and new car
incentives that have grown once again on the heart and soul vehicles of
most all manufacturers (similar models to rental cars). There has to be
somewhat of a price gap between new and used vehicles, Right? So figure
that in and #BooM. Book values fall at an alarming pace, and in huge
chunks like rarely seen before. Welcome to Reality!
What
struck me as extremely odd was that so many dealers not only never saw
it coming, but they didn’t even consider it a possibility. Some were
caught completely off guard. Hadn’t they seen this all before?
Over
the past five - six years dealers have become used to a false "norm" – a
norm in which there were serious issues with the supply and demand of
inventory. There are no longer any issues. All that has changed, and we
are back to Reality, and it’s not changing back anytime soon. Please
don't wait for the book values to begin rising again or you might go
broke. It isn’t going to happen. The new old "norm" had books
continually falling also, just not as rapidly.
Now,
the vehicles that were purchased only 60 days ago have dropped over 20%
in some extreme cases. This is one of those rare occasions that you
could possibly lose money while retailing a unit only 60 days after it
was purchased. Move the unit and make it up on the trade-in or the next
sale. The key is to keep moving towards your goal. I know it's hard, but
it is possible
.
How do you get out of the problem without losing your shirt?
Unless
you plan to move money around on a unit by unit basis, via packs and
write down accounts, here are a few things that I would recommend trying
first. You may not like it, but the only true way to improve your
situation is to sell your way out of it. You can do it!
1.
Set your inventory on a strict 30 day turn. It is possible. No, it is
not easy. You must get complete and total 'Buy In' from everyone to make
it work. You must have everyone working towards the same common goal.
Implement the necessary process to enable a group effort, and muster up
the discipline to stick to it.
2.
Stop Buying Inventory. Logic tells us that there are steals at this
time of year, and there are, but you need to adjust (with write-down
accounts or pack) any new inventory to current market value and deduct
the adjusted amount from your distressed inventory. Additional inventory
usually will only make things worse, but there are exceptions.
3.
Rally the troops. Authorize your management team to take short deals or
even losers based on what the market value truly is on the vehicle
being sold. Especially in subprime, where you are limited on what can be
financed by the book values. Without large down payments there is
little you can do to overcome the fact that your cost is above market
value as well as book value. If everyone is working as a team it will
make a bad situation a lot better.
Next
year when the Fall book drop occurs you will be ready. Now, as for this
year, take your lumps and move forward as quickly and efficiently as
you can and work to minimize your damage. Hopefully this time didn’t
cost you dearly, and it will just serve as a valuable lesson to ensure
that it doesn't happen again. Fall Back, Spring Forward!
