TRADE APPRAISAL: HOW TO NARROW THE GAP TO CLOSE MORE DEALS BLACK BOOK WHITE PAPER

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1 TRADE APPRAISAL: HOW TO NARROW THE GAP TO CLOSE MORE DEALS BLACK BOOK WHITE PAPER JANUARY 2018

2 ENSURING THE RIGHT TRADE APPRAISAL WITH YOUR CUSTOMERS The divide that remains between dealers & consumers on trade valuations, and how to narrow the gap to close more deals The trade-in process is among one of the most frustrating elements of car shopping today. It s one of the areas of the transaction with the potential to generate significant friction between the buyer and seller, which can be detrimental to the transaction. But if done successfully, it can generate significant sales, F&I, and service revenue and gross profit, while becoming a funnel for inventory acquisition for the dealership. Naturally, the dealer is looking to gain as much profit as possible on the trade. However, this can often come at the expense of the transaction, particularly if the dealer s offer is significantly lower than the consumer s expectations. It s easy to see how important the tradein is to the dealer, as it represents several areas of opportunity: The resale potential of the used collateral; the consummation of the transaction on the sale of a new or replacement vehicle; additional revenue from F&I products on the new sale; and future service and maintenance business, not to mention future referral business from the customer. The question remains, just how important is the trade appraisal process to the consumer? Aside from getting the number they want, is it really a deal breaker? This paper will address the trade appraisal process from the consumer s perspective, based on recent research gathered by Black Book. The findings can serve as a Best Practices guide for dealers, lenders, OEMs, and other automotive professionals involved in the transaction of a new vehicle where a trade is involved. So, how important is the Trade Appraisal? There are thousands of personal finance guidance articles written for consumers that discuss how to negotiate the sale or lease of a new car or truck. However, there are far fewer articles dedicated to offering advice on how to negotiate trade portion of the transaction. Is the trade-in process important to consumers? Recent research says yes, and it also suggests there continues to be a divide in how dealers approach the trade-in process, and what consumers want out of that part of the overall deal. While the trade-in process is a critical component, dealers may under-appreciate just how critical it is to the overall transaction. In fact, next to receiving a sale price drastically different than originally offered (27.8%), consumers said a vehicle trade-in quote that s far from expectations (21.5%) was the second-most likely scenario to kill a deal

3 Which scenario is most likely to kill the transaction? 25.1% 29.1% manufacturers realize the importance of conquest sales as an additional strategy to win new customers from a competing brand. Each year they invest millions in advertising dollars and specially targeted conquest rebates and incentives to win over and capture these incremental customers. 25.1% 27.8% But winning over that customer comes at a price, particularly when a vehicle is coming in the door with that customer via trade. The inability to accurately value that non-brand collateral can quickly turn a win into a risky proposition to monthly numbers. Many consumers cited specific frustrations with the valuations they often receive from a dealer. 36% of those polled said their researched quote was $ $1500 apart from the dealer s offer; and another 27% said their quote was more than $1500 apart. Nearly half (47%) said they need the dealer s offer to be between $501 - $1000 of their researched quote for it to be acceptable. How did your quote compare with the dealer s quote? 5% Sure, each new customer adds to the bottom line through new vehicle sales margins, accessories, doc fees and even F&I revenue, but a conquest deal with a poorly appraised trade can significantly impact profit margin on the overall deal. Building the right deal in today s market brings more and better opportunity with less risk when the right trade valuation resources are used during conquest sales. These resources allow dealers to engage with customers early on during the trade valuation, and provide a more transparent process that not only allows for a more accurate valuation, but also builds customer trust early in the transaction. 14% 29% What s more, advanced data, analytics and mobile technology now team together to help build in more profit potential on conquest trades. 20% 29% What s more, 46% said getting the right trade appraisal was either very important or extremely important to their decision on their next vehicle purchase. So, what s at stake in a sales opportunity? Trade appraisals are especially important today during a conquest sale. Car Years ago, a dealer only leveraged one source to evaluate a trade appraisal. Today, the process is far more complex. Data, analytics and mobile technology allow a dealer to quickly scan a vehicle, with trim-level specifics, and tap into his or her regional or national network of buyers to aid in realizing the best appraisal for that specific collateral piece. This type of technology not only increases profit potential on each trade and transaction opportunity, but it elevates confidence levels on behalf of that new customer, who may also be new to your dealership brand as well, for a new sale

4 So, how will dealers use advanced valuation data? The automotive industry is expected to remain highly competitive over the next several years, with margin pressures now a normal part of the landscape. This heavy competition will make it more difficult for dealers to elevate profit margins; therefore, finding additional pockets of growth through opportunistic trades on the right vehicles will be an attractive option. The identification of accurate trade values is available through access to data that is timely, independent and accurate. Black Book s suite of values includes wholesale, trade-in and retail values that are updated on a daily basis giving dealers the ability to perform trade valuations that maximize profit potential and build trust with the customer. Black Book also offers custom API data delivery, allowing dealers and consumers the ability to answer a series of questions that affect and adjust the value of the trade, and allow valuation data to be delivered with even more precision, to amplify profit potential even further. These tools are all offered with detailed analytics provided in a variety of file, portal, web or mobile platforms. For more information, please visit BlackBook.com/solutions/ data-as-a-service/. About Black Book Black Book is best known in the automotive industry for providing timely, independent and accurate vehicle pricing information, and is available to industryqualified users through online subscription products, mobile applications and licensing agreements. A leading provider since 1955, Black Book has continuously evolved to ensure that it achieves its goal of delivering mission-critical information to its customers, along with the insight necessary to successfully buy, sell, and lend. Black Book data is published daily by National Auto Research, a division of Hearst Business media, and the company maintains offices in Georgia, Florida, and Maryland as well as the Canadian Black Book in Toronto. Lenders use Black Book data to identify risk within their existing portfolios and act on opportunity. Industry insiders and third-party vendors license our data to evaluate trends. OEMs rely on our data and insight to fully engage more customers. Their dealerships subscribe to our data services to appraise vehicles, manage inventory, and book out vehicles, and they leverage Black Book s technology solutions to turn their websites, mobile sites, and Facebook pages into the industry s best lead-generating solution. Black Book continues to evolve with meaningful innovation. Our custom applications and cutting-edge mobile applications provide insight that saves time, maximizes profit, builds portfolios, and facilitates sales. For more information, please visit BlackBook.com or call Black Book (855) Support@BlackBook.com Jared Kalfus Senior Vice President, Sales (855) JKalfus@BlackBook.com

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