Traditionally, dealers have sold cars and consumers have bought them. But dealerships could miss out on a lucrative inventory source by only thinking like that.

A dealer buy-back program gives car owners the ability to trade-in or sell their vehicles to a dealership. They can also be used to give car buyers more assurance when buying a new vehicle.

There are two types of dealer buy-back programs:

Buy Back Guarantees - This buy-back deal is essentially a guaranteed return policy. This guarantee reassures buyers and helps allay fears of commitment. It also provides the option to return the vehicle for a refund within a certain time period.

Trade-In Offers - This is the more common type of buy-back program. The dealership offers to buy a used car and gives the owner incentives for a new vehicle. Those incentives can include special financing, rebates, discounted pricing, etc.

What Are the Benefits of Car Buy-Back Offers?

A vehicle buy-back program can be a profitable venture. It benefits both the dealer and consumer in a transaction. Check out the advantages of a car buy-back program.

Accelerate New Car Sales

Used car buy-back offers that exchange a previous model for a new model year can accelerate sales of new cars. Owners that weren’t necessarily in the market for a new vehicle may decide to take advantage of a buy-back offer. It will get them in a new version of their vehicle for the same monthly payment or less.

Dealers will source inventory from their service customers and make an offer on their current vehicles. There are a lot of software programs dealerships can integrate into their strategy to show who is a "hot lead", which can help increase service department sales. The software looks at the value of the car based on mileage and service history. And it identifies vehicles that fit into your desired inventory mix.

A vehicle buy-back program that offers a satisfaction guarantee on new cars can also support sales. Buying a new car is one of the biggest purchases most people will make. It’s a decision they don’t take lightly and may second guess. When it comes time to sign an agreement that locks them into a loan, some people get cold feet. A buy-back guarantee can give buyers the assurance they need to pull the trigger and make a purchase. Buyers feel less anxious about the purchase because they can make a return if they change their minds. Ultimately, very few people will exercise the return option. But it will make virtually every buyer more inclined to purchase a new vehicle.

The trick with both buy-back car deals is to make things as simple and comfortable as possible for the buyer.

Build Used Car Inventory

Used car inventory has been much tighter since manufacturers scaled back production a few times in the last decade. As a result, some in-demand, used models can be hard to come by. Instead of waiting for owners to decide it's time to trade-in, a buy-back offer can encourage them to come in sooner. It’s an active, rather than passive, approach. And it can help a dealership build its used car inventory in a more manageable way. It targets highly desirable older vehicles and you can look at it as trading a new car for a used car that’s easier to sell.

Buyer Incentive as a Convenient Way to Sell a Used Vehicle

There are upsides for buyers as well. The big draw for buyers is convenience. A dealer buy-back program gives them another option when they want to sell their used vehicle. One that’s far more convenient than selling on their own. The buyer may decide that it is worth the ease of simply driving to the dealership if the incentives are solid. Even if that means getting a little less money.

How to Make Car Buy-Back Programs Work for Your Dealership

While many drivers will benefit from auto buy-back options, that doesn’t mean a program will work. A successful dealer buy-back program must be set up to reduce as much friction as possible for buyers.

Have Clear Terms and Conditions

Every dealer buy-back program needs to have the terms and conditions spelled out. Every possible pitfall and challenge needs to be thought through. This way the buy-back offer moves the needle in the right direction.

Elements that need to be in the terms and conditions include:

• Deadline for taking advantage of the deal
• Amount of time a buyer has to return a vehicle
• Stipulations regarding vehicles that have been in an accident or damaged
• Minimum payment amount, if any
• Limit to the number of miles that are driven before the return, if any
• Percentage of estimated value that will be offered for the buy-back

Provide Flexibility With Trade-In Incentives 

New auto loans are traditionally attached to used car trade-ins. Buyers may be hesitant about this factor, but that doesn’t have to be the case. Some owners may be more interested in getting a rebate and paying cash for a new vehicle. The incentives need to be flexible, especially since many consumers are skeptical about incentives that are tied to special dealership financing. Give used car owners incentive options so they can choose the best deal for them.

Market the Program Strategically

Having a buy-back program isn’t enough. You need to get the word out to make it profitable. A great marketing plan should include:

• A memorable name: Make a marketable and catchy name that hits on the benefits of the program.
• A deadline: Put a deadline on the deal to create a sense of urgency and get people to act. The deadline should be on every piece of marketing material. A set timeline can also help you gauge how successful the promotion is for future buy-back programs.
• A focus: Focus the program on a specific model or product line. Focused offers tend to be more successful. They are more targeted and can be pitched as an exclusive offer.
• A strategy: To attract the most interest, choose vehicles for the buy-back program that are popular and in-demand.

Pick the Right Time for a Buy Back Promotion

The success of a dealer buy-back program depends on the timing. Do you want to offer buy-back deals during slow periods to bring in more business? Or do you want to boost inventory with buy-back deals when more people are in the market to purchase a vehicle? Should you market a buy-back offer before the next crop of new models rolls off the assembly line? 

Track and analyze the results of your past (and future) car buy-back programs to help answer these questions to maximize the results.

Allow Used Car Owners to Start the Process Online

Convenience is key. The easier you make it for the owner to initiate the buy-back process, the better. If you’re reaching out to people who own used vehicles you want to acquire, create an online process that they can access. This is for additional information or to reach out to your dealership. They’ll likely have a lot of questions and will want more details before they’ll even consider the deal.

Pricing in Buy Back Car Deals

With a buy-back program for cars, pricing is essential. Dealers need to find a way to make it simple while still tailored to each car. It’s also important to keep in mind that consumers have more access to car value data than ever before.

Vehicle owners will most likely research online to check the trade-in value, especially when a dealership offers to buy back a car. This is to get an idea of how much they could get by selling privately compared to what a dealership could offer.

There are two general pricing models for buy-back car deals:

• Percentage of estimated value from a third party, such as Kelly Blue Book (KBB).
• Percentage of the original Manufacturer’s Suggested Retail Price (MSRP).

The percentage offered should be a balance of what makes the most financial sense for the dealership. Of course, it still needs to attract car owners. Anything at or above 100% of the KBB value will draw attention.

Maximizing the value you can offer for the vehicle buy-back starts with maximizing the value of its resale once it's on the lot. 

Traditionally, this has been challenging. Selling to wholesalers can be a loss-prone strategy. Knowing how to get into dealer auctions and how to determine the wholesale value of a car once you’re there is crucial for success. On-site car auctions create a delay in the final valuation of the vehicle. An online auction platform, like ACV Auctions, gives you the benefits of an auction set up in 20 minutes or less. With a live appraisal feature, a dealer can pre-auction the vehicle to determine its valuation. They only accept the auction offer if the customer accepts the buy-back offer. The result is more money for customers, while dealers close more car sales and reduce losses on buy-backs.

Create a Vehicle  Buy Back Program That Supports Your Dealership!

Vehicle buy-back programs can be lucrative revenue opportunities. They can accelerate new sales, help build used inventory, and give buyers the convenience they crave. We look forward to helping your dealership maximize buy-back potential and stay competitive in this evolving automotive industry! Sign up for a free ACV account to check out our live appraisal feature and other options within our dealer auction platform. 

Sources

1. Bay Area Air Quality Management District “Vehicle Buy Back Program” Retrieved May 2022 from https://www.baaqmd.gov/funding-and-incentives/residents/vehicle-buy-back-program
2. Air Pollution Control District - Santa Barbara County “Old Car Buy Back Program” Retrieved May 2022 from https://www.ourair.org/old-car-buy-back-program/

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