Negative Equity: How Dealers Can Turn This Challenge into Opportunity

In the ever-changing landscape of the automotive industry, the aftermath of the “recent events” has left many vehicle owners in difficult financial situations. With large car loans and negative equity looming over their heads, customers are searching for ways to escape these burdens without losing their shirts. If you’re a dealer, understanding and strategically leveraging trade-in tax credits can help your customers and set your dealership apart in a competitive market. But it’s time to go further than just understanding—it’s time to take action.

Let’s start with a quick refresher. In Canada,and some U.S States, when a customer trades in their vehicle as part of purchasing a new one, they only pay sales tax on the difference between the trade-in value and the new vehicle’s purchase price. For example, if the new car costs $80,000 and the trade-in is valued at $50,000, sales tax is applied only to the $30,000 difference. This tax credit can provide significant savings, especially in provinces/states with higher tax rates.

However, the real challenge arises when customers aren’t ready to buy a new car immediately. The current reality is that many of your clients need to surrender their current vehicle due to financial pressures. The good news? With the right approach, dealerships can ensure these customers still benefit from the tax credit, even if the purchase is delayed.

The potential relief a tax credit can provide may be the silver lining in the looming storm cloud for both the client and the dealership.

Dealerships that master the process of managing trade-in tax credits can turn a painful customer situation into an opportunity for both parties. When a customer trades in their vehicle, particularly when dealing with negative equity, the dealership can offer a solution that helps the customer out of a tough spot while securing a shot at future business.

Here’s how it works: when a customer surrenders their vehicle, the dealership can lock in the trade-in value and apply it as a down payment on a future vehicle purchase. The tax credit remains intact if the transaction is documented correctly, and the customer returns to complete the purchase when their new vehicle arrives. This offers some financial relief to the customer and significantly increases the likelihood that they’ll return to your dealership to complete the transaction.

If the future purchase never comes, or the client goes elsewhere, the tax credit is lost. But either way, you’ve drastically improved your retention odds.

It’s no secret that many dealers sold vehicles at prices higher than pre-pandemic levels during the “recent events” due to shortages and skyrocketing demand. With the market stabilizing, some customers may feel they were "oversold" and now find themselves in uncomfortable financial situations. It’s tempting to avoid this issue, hoping it will resolve itself or that customers will simply figure it out on their own. But let’s be honest—avoidance is not a strategy. It’s time to stare into the abyss, embrace the discomfort, and create compelling solutions.

Dealers who face this challenge head-on will be the ones who ultimately win.

Here’s a blueprint for how to do it:

1. Painful but Necessary Communication: Start by acknowledging the situation. Reach out to your customers with an honest and empathetic communication strategy. Explain the market conditions during the “recent events”, the current realities, and how your dealership is prepared to help them navigate this difficult time. (They may not like it but they will appreciate the honesty and leadership)
2. Maximize Vehicle Value: Offer to assess their current vehicle and maximize its trade-in value. This will help mitigate the loss and strengthen your relationship with the customer. They’ll appreciate your willingness to help them out of a difficult financial situation. (make the bloodbath seem like a papercut)
3. Guarantee a Crack at the Next Sale: By locking in the trade-in value and applying it as a down payment on a future vehicle, you’re not just helping your customer—you’re securing potential future business. The tax credit can only be realized at the dealership that handled the initial trade-in, making the customer highly likely to return when they’re ready to buy again. (Customers for life mean something to you?)
4. Proactive Narrative Building: Create a narrative around the current market conditions and position your dealership as a trusted partner in finding solutions. Develop an email campaign that outlines the hard truth and offers your assistance. This is about being upfront and transparent, not just selling cars. (“We’re in this together, and we’re gonna win”)
5. Prepare for Wholesale: Be ready to do a lot of wholesale transactions without the front-end new car sale. While this might not be the most profitable short-term strategy, it could bolster your used car inventory—a valuable asset when clean, used vehicles are in short supply. You may even create a whole new profit center while everyone else is crying (I’ve been preaching about direct wholesale relationships…here’s why)

To put this strategy into action, I suggest creating a well-crafted email sequence that can be sent to your customer base.

Here’s how it could look:

• Email 1: Acknowledge and Inform: Start with a message that acknowledges the challenges many customers are facing. Explain how the market has changed since they purchased their vehicle and how your dealership can help them navigate this new reality.
• Email 2: Offer a Solution: Introduce the idea of maximizing their trade-in value and securing their tax credit for a future purchase. Highlight how this can help them get out of their current loan and into a better financial situation.
• Email 3: Build Trust: Share success stories of other customers who have successfully navigated this process with your dealership’s help. This builds trust and reassures customers that they’re not alone.
• Email 4: Detail the Process: Explain step-by-step how the trade-in and tax credit process works. Make it clear that your dealership will handle all the details, making it as easy as possible for the customer.
• Email 5: Call to Action: Finish with a strong call to action. Encourage customers to reach out for an assessment of their current vehicle and a discussion of their options.

This email sequence not only addresses the issue head-on but also positions your dealership as a proactive, customer-focused business that’s ready to help.

This strategy could set you apart from the competition and turn a crisis into an opportunity for growth.

The automotive industry is no stranger to challenges, but those who embrace them and create innovative solutions will be the ones who thrive. By addressing the uncomfortable realities of negative equity and leveraging trade-in tax credits, dealerships can build stronger relationships with their customers, secure future sales, and bolster their used car inventories. It’s time to walk into the storm, take control of the narrative, and show your customers that you’re here for them—no matter what.

Ready to Turn Challenges into Opportunities?

In today’s complex automotive landscape, the key to success lies in facing challenges head-on with a strategic approach tailored to your unique market.

That’s where we come in.

I specialize in helping dealerships like yours craft individualized strategies that not only address current market realities but also position you for long-term success. Whether you’re dealing with customers facing negative equity or looking to bolster your used car inventory, we’ve got you covered.

Here’s How I Can Help:

• Consulting Services: I’ll work with you to develop a comprehensive strategy that aligns with your dealership’s goals and market conditions. From crafting tailored plans to optimizing customer retention, we’ll ensure every step is designed to maximize your success.
• Email and DM Campaign Creation: We’ll create compelling email sequences, segmented direct messaging strategies, and persuasive talk tracks that resonate with your customers, driving engagement and loyalty.
• Landing Page Development: Need a custom landing page to capture leads and streamline your marketing efforts? We’ll handle that too, ensuring it’s fully optimized for conversion.
• Immediate Wholesale Offers: Haven’t built your network yet? I can provide an immediate wholesale offer for your client’s vehicle. With funds in your account the next day after the client surrenders their vehicle, you can act swiftly to meet your inventory needs.

Don’t wait for the storm to pass—let’s walk into it together and come out stronger. Contact me now to schedule a consultation and see how we can tailor a solution that meets your dealership’s specific needs.

Simply send me an email with the word “Buffalo” in the subject line

[email protected]