Chapter 19 — Key Takeaways: Appraising and Pricing Used Inventory
A one-page reference card. Self-contained — use it to re-ground later chapters and to keep yourself honest on the lot.
Key Takeaways
- You make the money on the BUY and the PRICE — not on the sale. Sell well and a bad buy still loses; buy and price right and the sale is easy. Time governs all of it.
- Cost-based pricing is the original sin. "I have X in it, so I need X" — the market never heard of your cost. Market-based pricing ("the market pays Y, so I price against Y") is the only thing that works. Cost decides whether to buy; the market decides what you can sell for. Tools: vAuto, DealerSocket pricing.
- Shoppers sort by price, so your price is your front door. Price-to-market = (your price ÷ avg market price) × 100. Get into the visible cluster (~95–99%) or you're invisible on page two/three — during the exact window the car is worth the most.
- Speed is the business. Turn = units sold/year ÷ avg inventory — double the turn ≈ double the income on the same money. Days' supply = (current inventory ÷ units sold in period) × days in period — sweet spot commonly ~45–60 days, checked by segment.
- A used car is a melting ice cube. A ~$20K car costs ~**$25/day to hold (floor-plan interest + depreciation, the hidden killer** + overhead). By day 60, holding cost (~$1,530) has eaten most of a typical gross.
- Price to market on DAY ONE, not day sixty. The best gross lives in the first ~14 days (the golden window). The aging curve only falls. The 60-day rule: a car still here at day 60 needs action, not hope.
- Auction: read the run list, the condition report, and the LIGHT. 🟢 green = sound/arbitrable · 🟡 yellow = announced issue (buy knowing) · 🔴 red = as-is (gambler's light). Arbitration has strict time limits, dollar thresholds, and categories — inspect incoming cars immediately.
- Spread ≠ gross. Real gross = selling price − wholesale cost − fees/transport − reconditioning − holding. Recon and holding quietly turn "great" grosses into "okay" ones. Recon to a standard, fast — don't gold-plate.
Action Items (do these on the floor / desk this week)
- Look up "% to market" on five aging units in your store's inventory. Flag any above ~104%. Those are quietly bleeding the store today.
- Calculate your store's days' supply — overall AND by segment. Find the one segment that's overstocked (stop buying it) and the one that's thin (chase it).
- Find your oldest unit. Compute its days-on-lot and its holding cost so far (days × ~$25–30). Decide a concrete action (price move, wholesale-out, or spotlight) — not "wait."
- Build/finish your Used Pricing One-Pager (the Project Checkpoint): value sources, days'-supply check, market-% rule, holding/aging reminder, auction quick-check.
- If you buy at auction: write your max bid before the car runs (retail-the-market − recon − fees − target gross), and practice walking away when bidding passes it.
Common Mistakes (and the fix)
| Mistake | Why it tempts | The fix |
|---|---|---|
| "We have too much in it, price it high." | Nobody wants to book a loss on a fresh buy. | Price to market on day one. "Too much in it" is a buy problem; never misprice the sell. Take the medicine, buy better next time. |
| Pricing high "to leave room to come down." | Feels like preserving a home-run gross. | You don't slide along the top of the curve — you waste the golden window and dump further down the slope. Price into the visible band day one. |
| Ignoring depreciation in holding cost. | It's invisible — no invoice for it. | It's the biggest daily cost (~$16–17/day on a $20K car). The car is melting whether you see it or not. |
| Nursing an aging car with hope. | "Someone will pay our number eventually." | The calendar always wins. At day 60, take action — aggressive price, wholesale-out, or spotlight. |
| Chasing a falling market with small, late drops. | Each small drop feels like enough. | Drops that trail the market keep you "above market" forever. Get ahead of it — price into the cluster decisively. |
| Confusing headline spread with gross. | "$5,000 spread = huge gross!" | Subtract fees, recon, AND holding. Real gross is often <½ the spread. |
| Over-reconditioning. | "Make it perfect, it'll sell for more." | Recon to a standard. Every recon dollar comes off gross; shoppers won't pay you back for gold-plating. |
| Buying with your heart at auction. | The chant, the pace, the urge to "win." | Your written max already includes a fair gross. Every dollar over comes straight out of it. There's always another car. |
Decision Framework
A) Pricing a used car (every time, day one): 1. Check the live market FIRST (comps / vAuto), not your cost. What are comparable cars selling for now? 2. Compute % to market. Target the visible cluster (~95–99%) for a clean unit you want to move. 3. Price it there on DAY ONE. Don't "leave room." The golden window is the first ~14 days. 4. Watch the clock. Approaching day 45–60 with no sale = it's a problem unit. Act.
B) When a car ages (day ~45–60+ unsold): - Don't drop it $200 and wait. **Act decisively:** move it firmly into/below the visible band, OR wholesale it out (auction/dealer trade), OR spotlight it (fresh photos, featured placement). Cut the ~$25–30/day bleed before it eats the principal.
C) Buying at auction (every car): 1. Study the run list the night before; chase the segments your days'-supply numbers demand. 2. Read the condition report and check the light (green/yellow/red). 3. Max bid = retail-the-market − recon − fees − target gross. Write it down. 4. Walk away when bidding passes it. (The best buyers go home empty-handed comfortably.) 5. Inspect incoming cars immediately — arbitration has a clock; undisclosed major defects on a green light must be reported fast, with documentation, over the dollar threshold.
The one-line version: Buy right, price to market on day one, and remember the ice cube is always melting.