Is Purchased Leads Better Than Cable TV for a New Used Car Lot That is Just Opening?
I was wondering what would be the best way to get the most bang for your advertising bucks when opening a new used car lot that will specialize in special financing? I am concern that with a nominal budget which is the best way to open a brand new lot? Cars will probably be retailed at around $10,000. the location is great and is in a town that has 5 colleges.
Does it matter that the lot only has space for 17 car? Even though I can store more cars somewhere else is it all right to have such a small lot? What kind of budget would can one expect to have for this size business?
I also have banks set up to do the financing for all types of customers. I would like to hear from all the experts out there that have started lots and were able to make a go out of it.
Replies to This Discussion
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Permalink Reply by Bobby Compton on -
Greetings Charlie,
Firstly, congratulations on your new dealership. For sure you're doing the right thing and YES starting out with a lot your size is a smart way to go, especially if you've never done it before. Its wonderful that you're reaching out and asking for advice and more so that you have advertising at the forefront of your thinking. I have 3 simple steps that I suggest to anybody who runs a dealership #1 Drive traffic to each profit center via advertising, social networking, prospecting and etc. #2 Upon success of driving traffic to each profit center, each and every prospect must be accounted for and handled with a successful and consistent set of steps to the sale and that your entire team are on the same page to maximize profit with out standing service and product. #3 Ask for referrals and follow up.
Before you spend a dime on advertising I would HIGHLY suggest that your efforts be put in creating postings on Craigslist and Backpage that are FREE to you. Upon posting those adds - make sure they're personalized and your doing the basics of selling your self, the dealership, and quality of product with credibility of Carfax and KBB. When it comes to buying leads, I would spend the money on promoting your own website and business location via T.V. - Radio - and Print magazines.
I'm truly excited for you and your success to come in your new venture. The used car business if where its at. Great timing!
Bobby Compton
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Permalink Reply by Steve Olivieri on -
Charlie,
Sounds like you are putting all your ducks in a row. How many lenders do you have to work with? How were you able to get these lenders with out even being open? We have tried radio in the past, and it is a great way to get your name out there. But so far internet and print have been our best bet. We have also thought about TV commercials, but with smaller lots, it is hard to justify the costs. Good Luck. By the way, which state are you in?
Steve
Access Auto Sales
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Permalink Reply by Peter A. Bond on
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Congradulations Charlie!
You pose a question in advertising we all fret about. Advertising & marketing is definately a science. I could respond over several pages, however, the short version in advertising is the question, "Why buy from you?" To most, you are just another Used Car Dealer! I always insist that every sales person ask the consumer what influenced them to visit us? I get consumer input regarding what would a dealer have to say and do to earn your interest in doing business through advertising? I take notice of what radio station the consumer's vehicle radio is tuned into. I record the accurate answers in order to learn my market. Leads are a completely different science! I want to reach every person who is in the market for a vehicle now! I can get a list for under $10.00 a piece in any market. This has been the most effective use of my client's advertising dollars! My site argprofits.com is available and feel free to call me!
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Permalink Reply by Charlie Hernandez on -
Well Bobby,
I was a new car dealer and got rid of my store back in 2007. Always , did a lot of used cars. I want to get back into but on a very small scale and get my feet wet. I have the banks because of my connections. I like to do this as opposed to going back to work for someone.
I think with a small lot I can make some $ and work my own schedule. if it works I can always get another place that is bigger. I am in the Northeast.
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Permalink Reply by John Douglas on -
I have room to easily stock about 30 units, but I've found our sales do just fine with less units in stock.
That doesn't sound right, but that's the way it's been.
Just try to quickly assess your market to make sure you stock the inventory that your market will buy.
Also make sure the units you have will "fund-out" with your lenders.
We've had excellent results with CL.
Good luck.
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Permalink Reply by Charlie Hernandez on
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John that was helpful. Especially keeping in mind that all inventory should book out with my lenders. THAT IS ABSOLUTELY RIGHT.
Thanks,
Charlie
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Permalink Reply by Gene Daughtry on -
I don't know how big your market is there. I operate in a small city with only about 15 competitors. I have found that radio is inexpensive here and my best source for sales. TV can work but the customers don't remember well after the next commercial plays. Radio goes all day and I run ads on 6 different local stations. I do a live call in show also and give away $50 every week and I get tons of sales and service just from that.
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Permalink Reply by Thomas Ieracitano on
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The Internet and Autotrader have been a big source of leads that we otherwise would not have seen. Radio and TV need to also have a consistent message including driving traffic to your website. People and Process are a must. If you repeat something it needs a system. Who is your DMS? Invest in a system for follow up because they may not buy today, but may down the road (change in budget , needs,etc). My website has some free files for download you may want visit http://DigitalCarGuy.com and I would be happy to send you in the right direction.
Thomas Ieracitano
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Permalink Reply by Philip Moore on -
Congratulations and thanks for stepping up. We need more entrepreneurs willing to devote their energy and expertise to getting our economy rolling again.
In 1967, George Akerlof published an economics paper where he hypothesized the market dynamics that account for the seemingly irrational discount consumers place on used cars. The idea that a vehicle loses thousands of dollars in value as soon as someone drives it off the lot is widely accepted but hardly understood. In 2001, the Nobel committee awarded the Economics Prize to Akerlof for his 1967 paper. In essence, here is what he said...
In a market with asymetric information, buyers place a risk discount on their utility function equal to their estimate of the probability of getting a "bad" product (in the used car vernacular, a "lemon"). For example, a consumer who believes 20% of used cars are lemons will only be willing to pay $8,000 for a used vehicle that should command $10,000 in a perfectly transparent marketplace. This is market price ($10K) minus the 20% risk discount ($2K). Akerlof went on to show that even a modest risk discount, say 5%, will eventually lead to market failure. Here's why...
The seller of a "good" unit knows their vehicle is worth $10K, the buyer without sufficient knowledge to recognize the unit as "not a lemon" and a belief that 5% of used cars are bad will only pay $9,500. The seller of a "lemon" will take $9,500 all day, while the seller of a "non-lemon" will be hesitant to accept below market value. This increases the probability of sale on the "lemons" and over time more "lemons" get transacted. This increases the probability of buyers encountering "lemons", and increases the perceived risk in the market with asymetric information. Buyers further discount, which further reduces the probability that sellers of "good" units will bring their vehicles to market. In theory, the risk discounting eventually becomes so onerous that only "bad" cars will transact and the market shuts down.
Franshised dealers and big box used car retailers use their brands as a signal to consumers that their pre-owned inventory are good units. Long established dealerships use their reputation and base of prior customers to the same end. As a startup independent with only 17 spaces and presumably no service department, anything you can do to reassure your customers and reduce their risk discounting will go directly to your bottom line. If you are doing BHPH, you might consider offering a vehicle warranty or "on the road" guarantee, that basically promises to keep your customer driving as long as they are current on their payment. The underwriting up front might make you a little less price competitive, but shifting the risk from your customer to the underwriter could be a great way to differentiate yourself from the competition.
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