Carbly | Why Used Car Market Trends Are So Important When Appraising

Why Used Car Market Trends Are So Important When Appraising

Insight into numbers with trend data

If you're serious about fully exploiting opportunities for profit when buying and selling vehicles, you'll already know that you need multiple data points for complete insight when appraising and pricing. Accurate appraisal requires a nuanced approach that cannot be achieved when only consulting a single source. Guidebooks and reports offer a value based on miles and condition at the time of your appraisal. Even with multiple data points, relying on those single numbers at face value can still get you into trouble. You need to actually understand the various numbers that the guidebooks and reports are showing. Examining market trend data provides the insight you need and will assist you at the time of acquisition and sale.

Trend data and wholesale values

To sell profitably at retail, you have to buy well at wholesale. If you pay too much at the time of acquisition you'll be lucky to get your money back without actually incurring a loss. Observing trends will provide the context you need to remain profitable. A flat historical wholesale trend is a welcome sight. It means that the vehicle in question has a stable value; you can trust the numbers that you're seeing, making it easy to predict your margin. If there's a spike in the wholesale trend, you need to pay a little more attention. Is this spike in value actually the result of increased demand from consumers, expressed in the auction lane or is it merely the result of another factor that won't actually yield a higher retail price?

In the case of increased demand it's safe to assume that you will achieve the margin you want so you're safe to step up and buy. The same cannot be said at a point in the market when a temporary shortage in supply is driving wholesale numbers up because that won't translate to higher prices at retail and you'll be buried. A sharp dip in a trend should also provide pause for thought. Is the dip the result of a wide recall, for which there are no parts, making a certain model undesirable at retail? You certainly don't want to fall victim to buying a vehicle like that at a seemingly good price. Maybe a big regional wholesaler has acquired a large one-time allocation of a certain vehicle which has temporarily depressed local wholesale prices even though retail demand remains constant? Buy as many of those as you can. In each of the examples it's apparent that relying on a single number to determine value could have resulted in a costly error.

Future proof wholesale buying using trend data

Successful wholesale acquisition also requires that a wise buyer look ahead in the market for a couple of reasons. The ideal exit from any vehicle is a profitable sale to a retail customer but it doesn't always work that way. The vehicle might not appeal to your buyers or it might not move quickly enough within the turn you operate, forcing you to sell it at wholesale. If the wholesale trend is flat, you can be relatively sure that you'll recoup your funds less your recon but if the vehicle is quickly trending down, you will want to factor that projected depreciation into your acquisition cost. Applying this method allows you to wholesale out of a bad unit without losing money so that you can buy something else that you might be more successful with.

Trend driven retail pricing strategy

A similar approach should be taken when considering your retail price. Most vehicles adhere to an average time on the lot. We all like that time to be as short as possible so that we can turn as many sales as possible but the average time on lot is a lot longer for some units, especially luxury cars. They also tend to suffer the most rapid depreciation so if you're in that end of the market, it's imperative you pay attention to retail trends. Comparing days on lot to projected depreciation will allow you to adjust your purchase price to build in the margin you want when you sell it at a time in the future. Failing to do so could mean that you lose money or break even at best.

Go deeper than a single number for success

The market today is always evolving and ultra competitive. Sourcing good used vehicles can be incredibly difficult and time consuming. Make sure that your dollars and time are not wasted when you're buying and selling by using trend data to maximise profit opportunity for every transaction and avoid costly errors.

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