Dealer Buy Back Programs
What Are Car Dealer Buy Back Programs?
Traditionally, dealers have sold cars and consumers have bought them. But thinking in those strict terms, a dealership could miss out on a lucrative inventory source.
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 basically a guaranteed return policy. Buyers are given reassurance that helps overcome fear of commitment by having the option to return the vehicle for a refund within a certain period of time.
Trade In Offers - This is the more common type of buy back program. The dealership offers to buy a used car and give 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 that benefits both the dealer and consumer.
Accelerate New Car Sales
Used car buy back offers that exchange a previous model for a new one 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 that 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 vehicle. There are a lot of software programs dealerships can integrate with to show who is a "hot lead" in the service department. The software looks at the value of the car based on mileage and service history as well as 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 mind. 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 its time to trade-in, a buy back offer can encourage them to come in sooner. It’s an active rather than passive approach that can help a dealership build its used car inventory in a more manageable way that targets highly desirable units. You can look at it as trading a new car for a used car that’s easier to sell.
Buyer Benefit: Convenient Way to Sell a Vehicle
There are upsides for buyers as well. The big draw for buyers is convenience. If they were thinking about selling their used vehicle a dealer buy back program gives them another option that’s far more convenient than selling on their own. If the buy back incentives are solid the buyer may decide that getting a little less money is worth the ease of simply driving to the dealership.
How to Make Car Buy Back Programs Work for Your Dealership
While many drivers will see the benefit of auto buy back options, that doesn’t mean a program will automatically work. A successful dealer buy back program must be set up in a way that reduces as much friction as possible for buyers.
Clear Terms and Conditions Are a Must
Every dealer buy back program needs to have the terms and conditions clearly spelled out. Every possible pitfall and challenge needs to be thought out so that the buy back offer moves the needle in the right direction.
A few things 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 the Incentives for Trade-Ins
Buyers aren’t oblivious to the fact the car buy back deal comes with a new auto loan attached. And some owners may be more interested in getting a rebate and paying cash for a new vehicle. Since many consumers are skeptical about incentives that are strictly tied to special dealership financing, the incentives should be flexible. Give used car owners incentive options so they can choose what seems like the best deal for them.
Market the Program Well
Having a buy back program isn’t enough. You need to market it appropriately to make it profitable. Your marketing plan should include:
- Marketable, catchy name that hits on the benefits of the program and is memorable.
- Put a deadline to 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.
- Focus the program on a specific model or product line. Focused offers tend to be more successful since they are more targeted and can be pitched as an exclusive offer.
- Choose vehicles for the buy back program that are popular and in-demand to attract more interest.
Pick the Right Time for a Buy Back Promotion
The success of a dealer buy back program could depend 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 role off the assembly line? Tracking the results of your car buy back programs can help you answer these questions to maximize the results.
Allow Used Car Owners to Start the Process Online
Convenience is a huge consideration. The easier you can 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 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 individual car. It’s also important to keep in mind consumers have more access to car value data than ever before. When a dealership offers to buy back a car the owner is most likely going to research online to check trade-in value and get an idea of how much they could get by selling privately.
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 financial sense for the dealership while still attracting 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 its on the lot. Traditionally, this has been challenging; selling to wholesalers is a loss-prone strategy. 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 setup in 20 minutes or less. Additionally, with a live appraisal feature, a dealer can pre-auction the vehicle to determine its valuation, and 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.
Sign up for a free ACV account to check out our live appraisal feature and other options within our dealer auction platform.
At majority of car dealerships, the sales and fixed operations departments are independent and function separate from one another. Dealership fixed ops (parts, service, and body shop) stands on its own, and, despite this industry...Read More
Buying a car that you haven’t seen with your own eyes can seem like a risky business. But that’s exactly what 50% of online auction car buyers do. The non-local buying trend is...Read More