Dealer Insights – March/April 2011 - Trade-ins expected to rise

Is your appraisal process up to par? 

U.S. auto sales will be back to historical levels by 2012, according to global management consultants A.T. Kearney. And if that forecast of pent-up demand holds true, you’ll be seeing more trade-ins than ever, as customers unload the older models with which they’ve been making do. Auto dealers know that a sure way to satisfy — or dissatisfy — customers has to do with trade-in offers. So, as you ready your business for a bump in used car stock, make sure that your appraisal process is fair and transparent.

Formal vs. informal 

Appraisal at many dealerships is informal. The used car manager typically walks around the vehicle, takes it for a test drive and checks the Kelley Blue (or Black) Book price. Skeptical customers think value is pulled out of thin air — and that it’s skewed in the dealer’s favor.

If you formalize the appraisal process, you can negate a perception of unfairness while being true to your store’s bottom line. Start by creating an appraisal checklist to make sure every inch of the trade-in is reviewed by your store. Train your employees on what to look for when they fill it out so that consistency prevails.

Next develop a questionnaire for customers to fill out that lists missing or broken parts and accessories — for example, a cigarette lighter or floor mats. Replacing such simple items eats away at your profits when you resell. Then establish a policy for obtaining a vehicle history report and set guidelines for how accident history should be factored in.

Finally — and this should be above all else — establish procedures for generating a computerized appraisal report that explains how you arrived at the trade-in offer. This is the key to adding credibility to your appraisal process.

Research weapons 

Customers are smarter today, thanks to the Internet. They easily can get a trade-in estimate at the Kelley Blue Book website ( ) or check comparable vehicle prices at and other research sites. So, it’s important to address this data when quoting trade-ins.

For example, suppose a customer prints out a quote of $10,000 for his SUV, as well as four comparable listings at ranging from $10,000 to $12,500. You offer $8,500, and the customer is insulted.

But a strong appraisal report will explain why this vehicle is worth less than the data suggests. It might have excessive mileage or need repairs. Also relevant is the vehicle’s desirability index and average days’ supply in your geographic market. These metrics gauge local supply and demand; if supply is high and demand is low, that will show your customer another reason why your offer is less than he or she was expecting.

Manager variations 

Even with various guidelines in place, appraisal is an inexact science. One used car manager might offer more or less than another, depending on appraisal skills, available information and personal assessment of vehicle condition. Be aware that savvy shoppers who are unhappy with an appraisal from one of your used car managers might return later when another manager is on duty — or request a second opinion from your store across town.

So keep a computerized log of all used car appraisals, sorted by VIN, and share the database with your other stores. Before inspecting a vehicle, your managers should always cross-reference your list to avoid rework and appraisals that contradict what you’ve offered in the past.

Software tools 

You can take away the guesswork with appraisal software, such as NADA AppraisalPRO, vAuto or DealerTrack AAX. These databases compile information from reputable third-party sources, including J.D. Power and Associates, AutoCheck and the NADA Official Used Car Guide.

Most software products also calculate local supply and demand metrics and allow for customized valuation adjustments, such as allowances for repairs, detailing and safety checks. Once you’ve entered the data, the software generates written estimates for you to give customers.

You can collapse or expand the report to provide as much (or as little) information as you want to the customer. Usually the software manufacturer’s name is on top of the appraisal form, which adds credibility and professionalism to your offer.

In short, appraisal software products — though sometimes costly — can help you quickly implement a formal appraisal process. But they’re never a substitute for management’s professional judgment.

When selecting appraisal software, choose a product that’s cost-effective and user-friendly. Ease of use is imperative if you want others to quote trade-in values when the used car manager is on vacation or at auction.

Now’s the time 

With new car sales expected to hit higher levels by 2012, trade-in traffic is likely to grow — if not boom. Dealership owners and managers would be wise to review their store’s appraisal process now. If your practices need improvement, this is a prime time to make that happen.



Dealer Insights – March/April 2011


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