November 8, 2012
Profitability in the used truck department starts with a correct assessment of the vehicle.
By Denise L. Rondini, Executive Editor
When done properly a used truck appraisal benefits all parties, according to Trevor Pasmann, corporate used truck manager at Kenworth Sales Co. “Accurate appraisals provide dealers with a higher level of certainty for building a price for the appraised truck,” he says.
“The sales representative benefits because accurate appraisals improve closing ratios and protect deals from unpleasant surprises. Accurate appraisals offer customers an opportunity to get the best possible value for their equipment,” he adds.
Peter Trench, vice president of national accounts at Manheim, cautions that if you appraisal a trade-in too low, the customer will look elsewhere. “But if you appraise too high, you might bury yourself in the trade making it tough to retail or wholesale it. If you’re appraising the vehicle to acquire it for your inventory and for retailing, you need an accurate price that factors in your market, any reconditioning work needed to make it retail ready and what kind of gross profit you are looking for.”
If you have a leasing operation, a proper appraisal is important to make sure the truck meets the lease terms or trade terms, says George Barnett, president of DEKRA-TRS.
The person best equipped to handle the appraisal process is someone who is knowledgeable and experienced, like a used truck sales manager. “The used truck sales manager will know what is selling in your market, what the wholesale prices are, and will have a good base of knowledge to determine how much reconditioning will be needed to make the vehicle retail ready,” Trench says.
He also suggests the used truck sales manager work closely with the new truck sales manager if the truck is a trade-in and part of new vehicle sale. “Sometimes you need to appraise the truck a little higher to close the new sale,” he explains.
Make sure your used truck appraisers are knowledgeable in the area of truck manufacturer models, components and specifications, Pasmann suggests. “In addition, the appraiser must have a basic understanding of the mechanical working of the vehicles.”
On the job training is the best way for used truck appraisers to learn their jobs. “You learn by doing and observing more experienced folks as they handle the appraisal process,” Trench says.
“When we get a new inspector, we send him out with one of our experienced guys,” Barnett says. “We let the new guy do the appraisal on the truck and our experienced guy also will do it. Then we compare the two reports and go over the things the new guy missed. We do this five to six times before our new guy is ready to go out on his own.”
A good used truck appraisal is detailed, comprehensive and informative, Pasmann says. At the very least, he says, the used truck appraiser should document the following: basic truck information (year, make, model, VIN, mileage, etc.), type and condition of interior, exterior walk-around body damage and paint condition, tires, wheels, brakes, suspension, engine, lights, frame, exhaust, fifth wheel, aftertreatment exhaust systems.
Barnett says it is critical to get the vehicle specs correct. “If you don’t get the specs right, there can be problems later on. Let’s say someone records the wheelbase wrong. They say it is 210 but it really is 220 and your customer needs a wheelbase that is 210 to get into a delivery spot because a 220 is not going to fit. There are a million things like that that can happen if you are not sure [what is on the truck].”
“After documenting the type and condition of the equipment and the specifications, the truck appraiser should meet with the customer for a question and answer session and to conduct a test drive,” Pasmann says.
Trench encourages dealers to have a technician look at the truck to assess its condition. He also suggests you try to obtain maintenance records if possible. In addition, make sure the appraiser is comfortable with different valuation tools and guidebooks, and has a good understanding of your local market and auction prices.
Some dealers outsource their used vehicle appraisals to a third party. According to Barnett, there are some advantages to using an independent appraiser. “In our case, we only use diesel technicians to do the appraisals so they know a lot more about the mechanical issues. In addition, we have people all over the country so if a dealer has to get on a plane or travel a long distance to see the truck, we can save him money.”
He adds, “We go through a 67-point checklist and take 17 standard photos as well as pictures of any damage. Between the three-page report and the photos we normally give [the dealer] more information than if he did the inspection himself.”
Whether you have a third-party appraise used trucks or do it yourself, make sure the appraisal is done properly. “Truck deficiencies need to be properly accounted for on the appraisal,” Pasmann says. “Failure to do so can be extremely costly. For example, failure to notice 10 tires that do not meet trade terms or DOT standards could cost approximately $4000 to repair. Failure to recognize a cracked DPF will cost approximately $3,000 and a failure to notice an engine oil leak at the rear main housing could result in a $1,200 repair bill.”
There is danger in appraising a vehicle too high as well as too low, Trent says. “You have to find the balance that allows you to acquire the truck at a fair market value and have a good gross profit when you retail it.”