New Software Determines Vehicle Worth With Surprising Results

How do you determine the value of a car? For the past century or so, dealers have checked the calendar in order to assess the value of a car. In essence, the clock began ticking the moment the car rolled off the original lot and it just keeps going once it hits a used car dealership.

The logic behind this approach is simple and straight-forward: The longer you have it in your inventory the less it is worth.

It's an approach that has fuelled seasonal sales and close out deals for buyers. Dealers, on the other hand, have begun to see their inventory as something that can spoil. Older inventory is seen as a drain on resources simply because of its age. That's been the traditional thinking since the beginning.

Dale Pollak wants to change all that.

"For the past 100 years, we’ve assumed the amount of time you hold a car relates to the profit it holds," he told Wards in a recent interview, "That’s a false assumption. Yet it is the foundation for every decision of consequence regarding a used car."

Modern Margin Compression

Dale and his team have developed a new piece of software called ProfitTime that is designed to be a more accurate way to manage inventory and measure its value. It still uses time spent on the lot but it also takes into consideration other factors - some of which are given more weight than the age of the car.

For example, the software also considers

• the vehicle’s history
• how well the same/similar vehicles are selling locally
• valuations from expert resources
• cost to market (with odometer adjustments)

ProfitTime also updates daily, so dealers can see how their inventory may affect their decision on what to offer for new inventory.

Accord to Pollack and vAuto, it means ProfitTime delivers up to date and comprehensive ways to see which vehicles truly need to be sold and which are idling just fine on the lot.

Tested in the Real World - With Surprising Results

Since ProfitTime was driven by a real world issue - minimizing the margin compression in used vehicles - it makes sense that it would be tested in the real world too.

After the team developed the way cars would be rated - on a scale of Platinum, Gold, Silver, and Bronze - the tested it across a wide array of used cars. They used the program to score nearly 1 million vehicles across more than 11,700 dealerships that use vAuto.

"We ran the analysis twice because we couldn’t believe what we found," says Chris Stutsman, senior director-product innovation for vAuto. "We saw a nearly uniform investment inversion across almost every dealer’s inventory. Dealers were managing their best investments, or Platinum cars, like they were their worst investments. Conversely, they were managing their worst investments, or Bronze cars, like they were their best investments."

It was, as Pollack puts it, a Holy Cow moment.

In the end, the team determined it boiled down to the practice of relying so heavily on the calendar to determine value. Vehicles simply are not created equal - so judging them based on the same rigid metric results in poor choices when it comes to pricing and promotion.

Other key findings from vAuto’s national inventory analysis included:

• Platinum vehicles made up 9% of all inventories and were priced at a ratio of 95.3% with cars sitting for roughly 40 days.
• Gold vehicles made up 22% of inventories, were priced at 96.3% and had an average age of 44 days.
• Silver vehicles represented 23% of inventories, priced at 97.9% and had an average age of 48 days.
• Bronze vehicles made up 46% if the inventory, priced at 100.9% and had an average age of 66 days.

It was enough to make experts agree it was time to re-evaluate traditional ways of thinking.

it's clear that Pollack and his team have big plans for the auto industry. Pollack makes no bones about his intentions to "Change the way a 100-year-old industry makes decisions on used cars."

Will ProfitTime deliver for dealers looking to battle margin compression? Only time will tell. Pollack knows he has an uphill battle when it comes to changing the way dealers think about using calendars to determine value. "It is a cultural shift," he says. "Some people will get it. Others won’t know what to say about it."