Buying Private Party

Generate 4 Revenue Streams from Private Party Acquisition

November 2, 2023
Man standing in front of a filled used dealer car lot

The Rise of the Private Party Market

How are dealerships acquiring their used car inventory right now? Between all the uncertainty and macro forces in the market it's no secret that used inventory is hard to come by. If you’re reading this you probably realize that auctions are way too competitive/pricy, and sitting on your hands waiting for trades is not a realistic acquisition strategy. 

So what are dealers supposed to do? The answer: Get Aggressive. There is a massive amount of opportunity right in your backyard that is getting bigger and bigger every year. 

According to the National Automobile Dealers Association (NADA), private-party sales accounted for 28.6% of the used car market in 2015. By 2022, that number had grown to 36.9%. This trend is expected to continue, with private-party sales projected to account for 40% of the used car market by 2025.
Source: NADA
A lot of dealers today, are getting ahead of the trend and building their own in-house buying centers or teams to start taking advantage of the FSBO market.

Revenue Streams Exclusive to Private Party 

Most dealers understand the many benefits that come with these private-party vehicles. Contrary to acquiring vehicles from the auction, street purchases generate four streams of revenue. The main categories are:

  1. Retail Gross (Front-end & Back-end)
  2. Additional Wholesale Gross
  3. Internal Service Gross
  4. Consumer Engagement (Brand awareness)

Let's dive into this. 

Revenue Stream 1: Retail Gross (Front-end & Back-end)

Front-End Gross

The retail gross with private party vehicles is historically stronger than what yWhen you buy someone's car, you are triggering the law of reciprocation. This means that they are more likely to come back to you when they are ready to buy their next car. By engaging with private sellers, you can build a pipeline of potential future buyers. There are a few reasons for this but mainly because the price per acquisition on private party vehicle acquisition tends to be as high as 72-84% less per copy.

Back-End Gross

Dealerships have more control over the back-end process when they acquire cars directly from private parties. This means that they can more easily bundle financing, insurance, and other aftermarket products into the sale. Back-end gross inherently has a true bottom line without having to factor in commission or spiffs. 

Revenue Stream 2: Additional Wholesale Gross

A great scalable revenue stream that allows dealers to grab gross quickly to help supplement through tough times. Many times dealers wholesale their inventory when they need to quickly increase working capital if they’re more profitable or desirable opportunities in the marketplace. 

Revenue Stream 3: Internal Service Gross

We all know service gross is extremely lucrative for dealers when driving gross to the bottom line. With private party acquisition (less recon and cleaner cars compared to auction vehicles), this gives dealerships the ability to increase their internal rates, run more units, and scale their service gross. 

Revenue Stream 4: Consumer Engagement (Brand awareness aka Marketing 

Everybody in your market is a potential future buyer. Private sellers are essentially just consumers. By engaging with private sellers, you are meeting consumers who are not just looking to sell their cars, but also to buy their next vehicles.

Real-world example:

A dealership that specializes in buying cars directly from private sellers has a large database of potential customers. These customers are all people who have shown an interest in selling their cars. The dealership can use this database to market its services to potential future buyers.

For example, the dealership could send out regular email newsletters with information about its latest inventory, trade-in offers, and financing options. The dealership could also reach out to potential customers directly by phone or text message.

Vehicle Acquisition Management Tool

Some of you might be thinking, yeah this sounds great but it takes way too long, costs too much money, and takes too much manpower to actually purchase these vehicles. If you have any frustrations with buying cars off the street, it’s probably because you don’t have a vehicle acquisition management tool and system like the one offers. If you’ve never heard of such a tool, we’d be happy to show you around the platform and give you a free custom market quote to get started! 

See it in Action

Discover how VETTX can supercharge your vehicle buying center. Schedule a free strategy call with our experts today and take the first step towards dominating your market.

2019 Toyota Tacoma sold with over $4000 ROI