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As the economy comes out from the recession, positive economic trends have resulted in four years of rising volume and price of vehicles.
In 2013, the auto industry had one of its best years ever, with a little less than 16 million new vehicles sold. The sales trends for 2014 appear to be slightly less aggressive, with results likely to be slower than the year prior.
A slowdown in the overall sales of new vehicles demands that dealerships remain on top of the sales strategy and aim to maximize margins while moving the highest possible volume. There are many tools and strategies available to car dealerships to maximize every opportunity in a highly competitive market. Positioning a dealership ahead of the competition is often determined by the dealership’s ability to select the right tools and strategies specific to the market climate, and implement change quick enough to consistently gain wallet share over the competition. Engaging new customers using online shopping tools has become the bread and butter of the automotive sales industry, with some websites having more traction than others.
Originally a printed periodical based out of Detroit and owned exclusively by the Steinlauf family, Edmunds.com has grown to be one of the most trusted digital resources for car shopping. The Edmunds.com website features listed, average, and sticker prices for new and used vehicles. It is also home to a comprehensive database of national and regional incentives and rebates available through different car manufacturers.
Edmunds also features dealer and inventory listings, professional reviews based on test drives, and tips and advice on all aspects of car purchases and ownership. In addition, the company circulates free e-mail newsletters to voluntary subscribers. The website allows for consumers to provide reviews of dealerships, and equips consumers with sophisticated shopping tools such as the TMV (True Market Value) trading tool. While this is a consumer-focused tool, the information it provides can be extremely useful when combined with both dealership and vehicle reviews when making strategic decisions related to pricing.
What Is the TMV Tool?
The True Market Value tool is a proprietary database that combines the sticker value of a vehicle against the average of what people are truly paying for the same model in your area. In short, the tool will equip the buyer to make a reasonable offer aligned with what the market dictates, based not only on the MSRP (manufacturer’s suggested retail price) but also on supply and demand.
How Can This Tool Benefit a Dealer Attempting to Increase Sales?
To better understand how this tool can be useful to dealerships, we must first go back to the basics of how car sales work. If you are a dealership, then you are keenly aware that a good percentage of your profit as well as bonuses for your sales team are the direct result of bonuses and incentives provided by the manufacturer. To this end, volume, particularly as the month is about to close, is essential to the sustainability and profit margins of any dealerships. In many instances, the incentives provided by the manufacturer are such that the dealership might be willing to go without a direct profit in order to meet sales quota, particularly as the end of the month approaches. The secondary but no less important source of revenue for a dealership is based on margin between their cost and the final sales price. Creating a competitive balance that takes into account your volume as well as your margin of profit is the secret sauce to a successful dealership.
In the past, it was quite difficult for dealerships to have real-time access to the final prices offered by competitors in real-time. For this reason, business decisions related to pricing were made in a highly insular environment, and often the only financial reference available to a dealership was a month-to-month comparison. The TMV, while advantageous to shoppers, is also a superior tool in equipping dealerships with real-time information to make pricing decisions that may result in pricing negotiations that are quicker, more balanced, and provide the salesman with sufficient information to maximize the opportunity without losing the sale to another dealership. This is combined with how the customers perceive the vehicle as well as the standing of the dealership.
The assumption when using TMV is that you are quite frequently dealing with a customer that has either conducted online research or has visited other dealerships, and might be ready to close a deal if presented with just the right pricing and incentive structure.
How to Use the TMV to Gain Competitive Advantage over Other Dealerships
Use the TMV to have a real-time awareness of pricing trends and ensure the deal you offer a potential car buyer maximizes your revenue, while remaining close enough to what TMV considers to be an average price for the vehicle based on recent sales data. Keep in mind that if you lower your price too much to secure an end-of-cycle sale and reach your volume goal, you are likely to affect the overall average, which will impact the potential price of future sales. By properly utilizing the data available, salesmen will be equipped to make decisions that give them an edge over other dealerships in the region.
What Else Should a Dealership Take into Account When Deciding on a Price?
Dealerships need to see the bigger picture. Aside from a sound pricing strategy, the long-term goal should be to trigger purchasing experiences that generate brand and dealership loyalty as well as potential online and offline positive reviews. If your dealership is struggling with your overall online reputation, then there might be value in creating pricing structures likely to capture new, satisfied customers, even at the expense of some margin loss. The idea is to create experiences that boost the dealership’s overall image. As image improves, so will the flexibility to price slightly higher as new customers perceive a higher overall experiential value.
TMV is just one of the many tools available on Edmunds.com to help consumers make educated decisions about their new or used vehicle purchase. In addition to using the tools, it is imperative that dealerships spend time building relationships through engaging with those that have provided dealership reviews on the website. By guiding the online conversation, dealerships create profiles that instill trust as potential customers browse their pages and inventory.
If your dealership is not yet fully managing its reviews and online presence on Edmunds.com and other popular review websites, don’t delay getting onboard. The potential to capture new audiences and bring buyers in the door is significant, and it is likely to continue growing as the Internet penetrates all aspects of the consumer experience.