OnDemand WTP Pricing Research

Why the Age-Based Pricing Model is an Outdated Investment Tool | CBT News

In a recent news article, Cox Automotive SVP Dale Pollak shared a sneak peak of what he promises to be better metrics for determining the price of used-vehicles. Pollack claims that pricing a vehicle based on ‘days on the lot’ is a measure of operational efficiency that is as outdated as the sundial.

What’s Wrong with Age-Based Pricing?
‘Days on the lot’ is a primitive way to determine a vehicle’s ability to make a meaningful profit contribution, or as Pollack puts it, a vehicle’s “Investment Quality”. This antiquated method of vehicle valuation comes from a time when data was limited and dealers were left with little more than gut instinct to determine a vehicle’s price.

With today’s technology and inexhaustible streams of data, however, it’s possible to evaluate investment quality the day a dealership acquires a vehicle. If a dealership overpays for a vehicle on day one, the best decision might just be to wholesale it on day 2 and reinvest in another vehicle that will turn a profit.

“If you know on day one, are you better off dealing with it today or 59 days later?” Pollak asked.

Determining a Vehicle’s Investment Quality
Pollack’s new approach to pricing is based on technology and data and promises to provide better metrics for making pricing decisions, regardless of vehicle age. Pollack has evaluated investment quality of used vehicles at several dealerships using these new methods. He uses platinum, gold, silver and bronze designations to identify which vehicles have the greatest profit potential.

The most eye-opening discovery Pollack made through these evaluations is that more than 80 percent of “platinum” vehicles were priced to move, while “bronze” vehicles were priced much less aggressively.

Read complete article here:

Why the Age-Based Pricing Model is an Outdated Investment Tool.