Getting the right stock at the right price is key to managing a successful car dealership. Furthermore, buying stock which suits your local market and target customer base will help you turn your stock quickly and support healthy profits.
In this article, we reveal some of the motor trade’s best kept secrets; including the different ways you can replenish your stock, reviewing each channel’s pros and cons, so you can make an informed decision when establishing your purchasing strategy.
Auctions are the traditional way car dealers purchase vehicles at wholesale prices to update their inventory. Dealers bid on cars either in physical or online auctions for all types of vehicles. One of the advantages of working with LE Capital is that when your bid is successful, we generally pay the auction house direct, which is a massive boost to your cash flow!
Auctions
Physical car auctions usually have an application fee of between £50-£100. Furthermore, the buyer has to pay the auction house an additional 5-10% of the price of the car purchased and this is called a “buyers fee”. The buyers fee will vary depending on the type of car and the auction house the vehicle is being purchased from. There may also be additional VAT, so it is good to make sure you are aware of this before placing a bid!
During the COVID-19 pandemic many mainstream auction houses went online. However, post pandemic, physical auctions have seen a resurgence in popularity. For example, Aston Barclay have recently returned to a 100% physical auction model on the back of increasing buyer attendance and G3 Remarketing has just launched a massive new physical auction house based in Castleford.
LE Capital, as one of the UK’s leading stock funders, has a comprehensive network of physical auction houses across the UK where we can facilitate payments directly to the below listed auction houses, to name but a few:
North East: Manheim (Washington), Wilsons Auctions (Newcastle)
North West: Manheim (Manchester), Aston Barclay (Wakefield)
Yorkshire and The Humber: Manheim (Leeds), Motor Auction Group (Rotherham), G3 Remarketing (Castleford), Aston Barclay (Leeds)
East Midlands: Manheim (Northampton), Manheim (Shepshed), Aston Barclay (Derby), Newark Motor Auctions (Nottingham)
West Midlands: Manheim (Birmingham), Wilsons Auctions (Telford), Aston Barclay (Prees Heath)
East of England: Manheim (Colchester), City Auction Group (Peterborough), Anglia Car Auctions (King’s Lynn)
South East: Shoreham Vehicle Auctions (Worthing), Aston Barclay (Chelmsford), Wilsons Auctions (Oxford)
South West: Manheim (Bristol), Manheim (Plymouth), Aston Barclay (Westbury), Wilsons Auctions (Maidstone)
Scotland: Manheim (Shotts), Wilsons Auctions (Glasgow), Central Car Auctions (Glasgow), Morris Leslie Vehicle Auctions (Perth)
Wales: Wilsons Auctions (Newport), Wilsons Auctions (Queensferry)
Online auction sites are usually cheaper than physical auctions in terms of the extra fees. Rather than pay to enter each auction, auction sites usually have a one-time registration fee (£75-£150) or require a deposit that may be returned in case you do or don’t make a purchase. Make sure to carefully read the terms on each auction site to understand the conditions of your deposit.
Most mainstream auction houses operate an online auction model (and some, like Cazoo Wholesale, operate solely online). Online auctions have the huge benefit that you don’t need to travel to make purchases, and buyer fees can be cheaper. However, there are also good reasons to attend auctions in person. For example, you are able to feel and touch the stock prior to purchase at physical auctions and you may be able to gain good market intel and feedback from networking with your industry peers.
LE Capital work with online auctions such as Cazoo Wholesale and Auction4Cars, as well as many of the auction houses listed above which offer both physical and online auctions.
Auctions are a favourite amongst car dealerships because, despite auction fees, it is usually the most cost-effective way of getting new stock. However, it is important to be wary of getting carried away in the bidding process which can result in overpaying for the car against the market price which, in turn, will have a negative impact on the margin when selling into a competitive market!
When it comes to availability of the widest range of stock to choose from auctions are likely to be your best bet. This is because there will be access at certain auctions to vehicles that the general public rarely get the chance to purchase, such as vintage, classic or discontinued vehicles.
If you need to replenish stocks quickly, especially to meet customer demand, the logistical support provided by auction houses should mean quicker turnaround times compared to other purchase options.
Reputable auction houses will provide an extremely detailed history and condition report in respect of their vehicles. While you can never be completely certain of a car’s quality at auction, for example if there are hidden faults, you will usually have a more comprehensive understanding in comparison to other stocking sources.
Auctions are typically very well-regulated so they work hard to ensure buyers are made aware of any serious faults beforehand. However, it’s always good practice to make sure you come to the auction knowing the types of cars you are looking for and with sufficient research to also know how certain makes and models have inherent faults and how they perform over time.
Sometimes, car dealers sell a car at an auction because they cannot sell it at their own dealership. However, this could be because the type of car is no longer suited to their specific customer base rather than it being an unfavourable make or model. It is also important to understand that not all sellers at auctions are car dealers. The auction house may be the chosen method of selling because the sellers do not have a dealership of their own. Some auctions will provide details of the vehicles source which can give you a better understanding of the vehicles of condition.
You may choose to accept part exchanges from customers. This means they can exchange their current make or model as a part-payment against the cost of a replacement vehicle. Part exchanges are common for drivers looking to update their existing model with the latest version. However, a close inspection is recommended and any mechanical faults, dents or scratches, should be taken into consideration as an additional cost when negotiating the exchange.
You will need to decide if the part exchange with the customer is for your benefit or theirs. Although, you do not need to focus entirely on the profit at this stage of the part exchange process because, if they are a valued customer who will return again, this should be taken into account when the costs of remarketing the vehicle, including your time and effort, so you don’t lose out from the sale. It’s also advisable to consider the cons listed below to decide whether the trade is worth it.
Part Exchanges
You can make a profit from customers who otherwise would not be able to afford new cars without returning their previous ones. If you are seen to be fair with the part exchange allowance and provide a good customer experience there is an increased likelihood they will tell their friends and family, resulting in a higher probability that this could become a consistent form of income stream and a boost to your dealership’s reputation.
Part exchanges can be especially beneficial if the car was originally bought from you because you will already have knowledge of the car’s history and condition. You will therefore not need to do the additional research that goes into buying and remarketing a never seen before car.
Because they are your customer, there will be no need for a middleman to assist with the sale so there are no auction fees or other broker fees.
It is simpler to sell a car to someone outright with no part exchange rather than having to then sell the car on as part of the deal. This is due to the cost of remarketing which will have a negative impact on the margin earnt, along with the time and effort required when applying the mark up!
The deal may not feel fair to the customer due to the additional costs you have to account for so, to avoid the customer feeling like they have been taken advantage of, it’s good practice to offer them a transparent receipt of the mark-up costs to show where the money is going. If you can, provide evidence of the costs involved in remarketing, storage, administration, selling time and depreciation.
Car rental agencies and fleet operators can be a useful source of stock because these types of users tend to renew their fleets regularly and have a consistent stream of makes and models with a good maintenance and scrutiny programme in place.
Car Rental Agencies and Fleet Operators
Usually, car rental and fleet operators have a large amount of stock so you should have a good range of makes and models to choose from. It is also beneficial if you are looking to buy multiple cars at once because the opportunity to negotiate a discount based on bulk purchases can be seen as a win-win for both the seller and buyer!
Due to the nature of the business, cars from rental agencies and fleet operators will have been well maintained throughout their working life with the company.
Purchasing vehicles from rental agencies will usually mean they are likely to have been used by a larger number of different drivers, have high mileage compared to the year of manufacture and, in some cases, have a higher number of users with varying driving styles, which may mean the vehicles have had more wear and tear than from other comparable stocking sources.
A warranty is necessary to negate the risks of purchasing used cars with pre-existing faults. Car rental agencies and fleet operators treat the sale of a vehicle to a dealer as a trade-to-trade purchase and so generally don’t provide a warranty or, if they do, it will be limited. It is therefore important that you look into their warranty policy closely before you buy from them.
Older models are fine if they are what you are looking to sell. As mentioned earlier, try to find out from the company just how much use these cars have had.
You can find private sellers via newspaper and online ads, from online marketplaces such as Auto Trader, Gumtree, and Motors.co.uk or on social media market places such as Facebook Marketplace. You can also meet some private sellers at car auctions, which are a good place to secure and nurture personal relationships.
Motorway, Cinch and Carwow have been touted by many as the next big motor trade giants and the trade’s best kept secrets in finding stock and cutting out the middleman, which by the very nature of their business model, has opened up the private sellers’ market; offering a new way for dealerships to find and buy privately owned used vehicles via its strong nationwide network. All cars available through private purchases using this source of stock are direct from private owners, exclusively available to bid on and buy in daily online sales.
Private Purchases
Purchasing direct from private sellers can save time with remotely managed transactions. It may also prove easier to build a relationship with someone who is not part of a large bureaucratic company. Having a relationship with a private seller could benefit you in the mid-to-long term, such as future dealer exchanges or discounts on their stock.
You may need to go private to find the car you are looking for as the private seller may be the only person with your desired stock. Private stock tends to be higher spec and much better looked after than other stock. On Motorway, Cinch and Carwow, dealerships can set up their preferences through filters and receive alerts the moment suitable stock is listed online. Each vehicle has a full profile with photos, specs, condition, and service history.
When purchasing directly from a private seller, check the warranty they provide and their previous sales experience and reviews to get an idea of how much you can trust the purchase. There may be some buyer protection if you buy on a particular marketplace such as Gumtree or on social media platforms.
When you, or your collection agent, arrives at the collection point, it may be that the vehicle is not as described in the advert and has hidden faults. It is always good practice to either pay the extra curb side examination cost provided by Motorway or provide your collection employee/agent with a detailed vehicle scrutiny sheet which can also act as a tool for negotiating a reduction in the cost of the vehicle.
In conclusion, there are a variety of ways to replenish your stock and they come with a mixture of pros and cons. To ensure your forecourts are stocked up, it’s more important than ever for dealerships to use a multi-channel strategy for stock sourcing. Once you have tried and evaluated different methods to replenish your stock, you can then decide where your money and time is best placed to grow your stock and maximise your return on stock investment which will lead to operating a successful dealership.
If you would like to speak to one of the team, please get in touch at info@LECapital.co.uk or on 0116 502 0116.
