In this transcribed episode of the Used Car Dealer Podcast, Zach talks with Derek Hansen, Vice President of Inventory Management Solutions at Cox Automotive and head of vAuto, about how data, AI, and disciplined process are reshaping used-vehicle inventory strategy.
Derek shares how his background in tech (Intel), consulting (Bain & Company), and automotive shaped the way he looks at the intersection of data, process, and people in the dealership. He digs into the operational gaps that still hold stores back today—from inconsistent sourcing and recon to weak data hygiene—and how the most progressive dealers are using variable management to move beyond static aging rules and truly manage risk at the VIN level.
he conversation covers how vAuto is aligning its tools and roadmap to help dealers move from simply reacting to the market to shaping their own market, the different dynamics of new vs. used inventory, and the “hidden variables” that separate top performers in stocking and pricing. Derek also unpacks the realities of AI in the store, the importance of clean data, and what cultural and operational changes are required for 50+ unit rooftops to scale technology without losing the human touch.
Whether you’re focused on tightening acquisition, improving turn and gross, or preparing your inventory strategy for the next 2–3 years, Derek’s insights offer practical takeaways for independent dealers and large franchise groups alike—plus clear advice for anyone sitting on 60+ days’ supply and looking for their next move.
Zach: Today on the Used Car Dealer podcast, I'm privileged to welcome Derek Hansen, Vice President of Inventory Management Solutions at Cox Automotive and head of the vAuto brand. Derek brings deep experience in wholesale and retail operations, analytics and tech-driven inventory strategies.
Thanks for joining me on the podcast today, Derek. Zach, it's great to be with you. Good afternoon.
And Derek, tell us a little bit about your background and how you got into the automotive business. Yeah, absolutely, Zach. I think we all have an interesting story of how we make our way to automotive, but mine's a little non-traditional as well.
Derek: So I actually started out in tech at Intel in their finance group and really enjoyed tech, but wanted to get more to the general manager side of the equation. And that's what ultimately led me to automotive. I ended up in strategy consulting.
I was at a company called Bain & Company, and we were working with a lot of different clients. I did sales strategy, did some investment, some PE work, and ended up having some projects that were working in the automotive space, and I fell in love with it. I think the automotive space is such a unique environment where there's so many factors at play, right? When you think about the OEMs, you think about the dealers, you think about all the consumer options, you think about the financing elements, the service elements.
It's a really complex industry, and car dealers are some of the most scrappy, innovative and resilient entrepreneurs I've ever seen. And so I love that opportunity to dig in, to solve problems in this complex industry and find ways to help make that process easier for them to retail more cars. And that's where I am today at vAuto.
We take the insights and the data from the industry, and we try to serve them up in workflows that help our clients retail more cars and grow their business.
Zach: I love that, and love that story as well. And you have such an impressive background coming from Bain.
How has your consulting and tech background shaped the way you think about dealer operations in the intersection of data and process?
Derek: Oh, and I think you nailed it right there. I mean, that intersection of data and process is so rich right now for automotive dealers. And it really is back to the basics, right? It's how do we get the data in a place that we can make it visible, that we can start to track it, and that we can use it to test, to measure and to improve, right? And that's the process that we go through, whether that's your acquisition strategy, your appraisal process in the store, whether that's your pricing strategies, using the data to optimize the price, to market, and what we're seeing from a macro perspective.
It's your merchandising, it's your sales process, it's your recon process, right? Like there's so many processes that are under the hood of a dealership that ultimately drive to the profitability of that dealership. And so as you dig in and try and solve any one of them, it is very much focusing on the data, focusing on measuring the results and continuing to drive improvement month to month over and over.
Zach: So when you look at the dealer side, both single rooftops and multi-rooftop, like larger groups, what are the biggest operational gaps that you've observed early that are still persistent today?
Derek: Yeah, I think it's interesting, particularly as we think about dealerships, we talk about they're such scrappy, resilient business people, right? And often they start in a single rooftop and they see success, and so they start to grow.
It's really hard to scale process as you grow across rooftops, particularly the large groups. And so you see that a lot of these large groups still operate in a very autonomous way, right? They hire a great GM and they say, all right, go forth and conquer, do what you've done historically, drive great results at this new dealership, this new rooftop. And what we're seeing now is with the data and the tools that are present, you can capitalize on that scale more than ever before.
And you can capitalize in ways that drive more consistency across the stores in process, right? We talked about how important process is, all the different processes happening at the dealership, getting to more consistency in how you manage, how you track and how you drive accountability across stores now, not even across departments, but across stores is becoming easier than ever. Still a lot of work, still a lot of discipline, still engaging in the basics and digging in the trenches. But I think that's the way that we're seeing this industry evolve, where now these scale players are starting to gain more benefit.
And as you leverage that scale, whether it's the scale of tools, it's the scale and acquisition and getting the inventory to the right place, it's the scale and the brand and the customer base that you have, you're starting to see differential performance as those operators are able to capitalize on that scale. So it's happening and it may be a slower pace than many expected, but you're certainly starting to see differential performance with that scale.
Zach: Very well put. And one of the V Auto initiatives is what you call variable management, helping dealers understand each vehicle's profit potential through data science. How does that differ from traditional used car inventory practices?
Derek: Yeah, Zach, there's a lot of history in that question. And as you look at traditional practices, right, I mean, traditionally dealers, you know, they got a great piece of inventory, they wanted to maximize the gross on that piece of inventory, right? And, you know, ask for the moon and hold on to that piece.
And Dale Pollock was so instrumental in really helping the industry evolve to see the potential that as they actually turned more inventory, utilize that space several times throughout the year, you didn't have to ask for the moon on that car, you started to get better net performance as you turned inventory. And we've continued to evolve now to another place of variable management where based upon all the factors in the marketplace, we can take intense data science, predictive data science to say, hey, we know used car supply, we know demand, we know how your store performs with any given make, model, trim. We know what consumers are actively searching in the market.
We can take all those data points and we can run probability of sale models in the background with all those data points so that we can help put you in the position, the best position to succeed, whether that's, hey, you can actually get a little bit more gross on this car, or we want you to move this car faster, knowing how, where to turn the dial on any given VIN is that variable management approach, right? And turning the dial so that you can optimize for your return, optimize for the investment that you have in that piece of inventory so that you can keep the dealership turning, keep the flywheel moving, but not sacrifice gross to keep that flywheel turning. And so that's the effort that's underway. And we use some of the best data science in the industry.
We have an incredible team here at vAuto to continue to refine and evolve so that we're pricing the car, optimizing its price in market based upon all those data points.
Zach: And in your recent commentary, you've mentioned the shift toward proactive versus reactive inventory decisions. How are you aligning vAuto's tools and roadmap to support a dealer who wants to move from simply reacting to the market to shaping their own market?
Derek: Yeah, and it's all about using that data to pull those decisions forward, right? And historically, you may have had a lot of dealers still today may still have like, you know, there's their hard aging rules, right? 45 days, we're doing this 60 days, we're doing that or 60 days, it's out, whatever the case may be.
What we're able to do now is pull forward. So you're less reactive as that car is aging, and you're more predictive on based upon all that data, right based upon the supply and demand we're seeing based upon the consumer activity, from the point of appraisal from the point of acquisition, helping you understand what your ideal exit is and what that timeline looks like. So you're prepared from the point of putting money on the hood of that car to acquire that car.
As you do that, that puts you in a much better position than to optimize your return to get get better, better gross out of that vehicle, because you go in with that plan with that exit strategy, versus using aging rules to manage your inventory. And so pulling all those data points, distilling them in a way to serve them up to have that insight at the point of acquisition, that really starts to inform the dealer to operate at a whole new level. And at vAuto, you work across both used and new inventory challenges.
Zach: In vAuto, you work across both used and new vehicle inventory. How do the dynamics differ between used and new when it comes to inventory strategy? And how are you helping dealers stay competitive in both?
Derek: Yeah, Zach, there really are multiple dynamics that are different between those two segments.
Both are critical to driving performance at the dealership. As you think about new cars, certainly you have the OEM that's a key partner that's critical in that equation. You're working with them on which inventory you stock, on how you get your allocation.
And so it's working with them, making sure you have whatever incentives come from the captive, that you've got all that in place and you're merchandising that inventory appropriately and pricing it appropriately. And we want to help position the dealer to do that, to get the right inventory from their OEM partner, to have the incentives on that inventory and to price it accordingly. On the use side, there's a lot more factors at play as far as factors in your control, right? We talked about how acquisition is becoming so important and that's where it starts, right? What inventory do you acquire that fits your strategy, that fits your customer base and what you're trying to do with your dealership? A lot of these dealers, they want to grow, right? And used is a great avenue to drive that growth.
It's in your control, right? What do you acquire? How do you merchandise it? How do you price it? How do you sell it? How do you get the eyeballs on it to sell it, right? And as we work with our partners, our clients, there's so many different parts of that process on used that can be where they fall down or where there's opportunity to grow, right? You could be great at acquisition, but you're not merchandising appropriately. You're not getting the eyeballs. Well, even if you had the best price and the best sales team, you're limiting your growth and your performance.
Conversely, maybe you're doing a really good job getting eyeballs, but you have a terrible sales process and they're discounting everything at the desk as they try and close the deal with F&I. That's a problem, right? It looks like you've got a pricing problem, but you don't actually have a pricing problem. You have a sales and a discounting problem.
So the auto is positioning with the dealer for every aspect of that used car supply chain to make sure that your processes are in place and we're helping streamline those processes. So your used car manager has everything within the tool that really can help them level up growth and continue to drive a key part of the performance of the dealership.
Zach: So to kind of follow up on that, on the used car side, we've seen a lot of pricing volatility, shifts in consumer behavior, for example, EVs and rising acquisition costs.
What are the standout hidden variables you believe dealers are overlooking when stocking and pricing used inventory?
Derek: Yeah, I think, you know, there's several aspects, right, as we think about all the processes involved. And so a couple that come to mind, I mean, acquisition is critical. And if you're just defaulting to the auction is, is my source to feel, fill inventory, fill holes, to make sure I have sufficient cars in the lot, you're, you're, you're sacrificing margin in that equation.
And, and we're seeing the highest performing dealers that are driving growth. They're, they're getting more resilient and industrious in how they acquire, and they're building more robust processes to acquire, whether that's service drive, whether that's private party, whether that's even mistrades, like getting disciplined and going back on mistrades so that you're putting more money on the car when you need to, or you're bringing that consumer back to the dealership to close that deal. So that's one, I think acquisition is one certainly that that's critical.
I think the other one is recon it's time to line. It's often, Hey, we've acquired the car, but look, we still have an aging problem. Well, we have an aging problem because it's taken us 15, 20 days to get that car to the line.
And so we're already behind the ball when we get that car ready to, to, to get eyes on it. So that there, those are two that come to mind that, that we're seeing dealers that are really pushing the envelope for performance, really focused in those two areas to make sure they're executing and performing at all cylinders.
Zach: And from your recent commentary, AI is only as good as data it's fed.
What are the data quality pitfalls you see at dealerships when they try and adopt advanced tools and how should they address those foundational issues?
Derek: Yeah, absolutely. I mean, data is, I mean, AI is only as good as the data you feed it with. Right.
And so we've seen, as we've been working with our client partners, you know, if, if, if they're not using whole datasets, they're, they're loading half truths and they're going to have some suboptimal outcomes you know, a couple of examples, right. We just talked about one. I may look at my used car sales performance and my gross isn't where I want it to be per vehicle.
I start digging in. I have a pricing problem. So I'm digging into my pricing strategies and rules and come to find out I have a discounting problem.
Right. And I'm not actually using the discount, the sales transaction price. I'm using the last list price.
And that, that creates a problem. And so we've been working with dealers to, to bring in the transaction price, to make sure they have a complete view of that used car end to end so that they're accurately diagnosing and digging in on where they're falling down from a profitability perspective. So, so that's one, I think, you know, another one, you know, we talked about acquisition.
We've been working with dealers to improve acquisition. Some of our dealers don't define sourcing in how they're acquiring which channel. Right.
And so the, the way to get better is again, visibility, focusing, measuring, and driving accountability. And so by putting sourcing or source channel within the appraisal process and holding that your team accountable to that you know, is it, you know, we expect to have a lower percentage coming out of service drive or expect to have a lower percentage of private party, but tracking that performance by channel will allow us then to diagnose which channels perform best at our dealership and what we can do within specific channels to improve that process, to improve our pull through rate on that channel and drive better performance overall at the dealership. And, and there's a lot of ways that dealers, you know, can start to game if they, you know, the team members can start to game.
And so making sure you have clear data, clean rules, and you're feeding that so that as you report back you're, you're ultimately focused on the areas that will drive the most improvement for the dealership.
Zach: So my next question, the workforce in dealerships is shifting. What operational or cultural changes do you think are required for a dealership? Let's say 50 plus units to scale up in tech and data without losing the human touch.
Derek: Yeah, that's, that's such a great question in the current environment in that we have seen a massive change in the workforce post COVID. And in some ways, it's great. It's, it's a great opportunity for those who are willing to invest in the right tools to use all that data that now exists around them to improve their process.
And the way we think about using data and AI, it's a supplement to your team members, right? So a couple of examples, right on the appraisal process, we're, we're getting better at bringing in all the data points to know your potential exit, but also bringing in all the elements to that specific vehicle, right? Say it's a Honda 2019 Honda, you're at a Ford dealership. You may not see 2019 Honda's with a hundred thousand miles regularly, or it's a Hyundai Sonata or whatever the model is. What should I be looking for on that Hyundai Sonata that I may not be akin to looking for as a Ford dealer? Maybe, you know, it's got a timing chain issue or a transmission issue.
And these are how these are the ways I test for it. That is a tremendous use case for AI, right? AI can scan all the resources available on the internet and all the forums, the user forums, the ROs, it pulls all that data, distills it down in a way that's empowering your team that may not have the experience, right? Of, of a 30, 40 year used car vet, but they can bring all that experience forward and distill it to that specific VIN and what you should be looking for on that VIN. It can bring the vehicle story of that VIN to life in a way that was harder pre-COVID or pre-AI, right? Pre-connecting those dots and telling that story.
And so that's a way that it's supplementing your team. And so it's those team members who are willing to lean into the data. So they get that comprehensive story, lean into the tools and the AI that connect, that bring that to life, that empowers your team in a way that one, to have a more comprehensive view of the car and they're better positioned to get the best dollar for that car.
And two, it makes them more efficient, right? In that the time necessary to bring that story together, to put the right number on that car goes from minutes, hours to, to minutes and seconds, right? In that how you can, can bring that and empower your team. So I think the efficiency and the accuracy of what AI can do for those team members that don't have that experience really does end up driving better profitability at the outcome when you're selling that car.
Zach: So Derek, I wanted to shift gears and talk about some future outlook and innovation questions.
So looking ahead, what tech or data trends do you believe will have the biggest impact on used vehicle inventory strategy over the next two to three years?
Derek: Yeah, there's so many right now that, that, that we're empowering. I mean, I think from a, you know, where I'll really focus, I think that it will be the key focal point for the next two, three years is acquisition, right? And so as you really deploy the tech and AI that can best help you continue to make progress and scale your acquisition opportunities, I think that's how I would view this as having the most impact. And there are a lot of tools that we're empowering to do that.
One of them is connecting the service drive and the inventory management in vAuto more seamlessly. So I can bring in all of the ROs that I have on any car that I've seen in my service drive. Now I'm empowered to make a much better decision, again, all within seconds, not having to copy, paste, search, look, you know, take minutes or hours to build out my queue for what I want to acquire with the right information on what I should be putting in the car, but doing it in seconds.
So I think the ability to lean into the tools that will help you, whether it's connecting the service drive, whether it's texting and automating the conversations that you're having with consumers and how you go from low tech to targeted to really AI tech driven in your processes, that will be the measure of success, I think, over the next couple of years in inventory management.
Zach: So as EVs subscription models and offsite sourcing continue to evolve, how do you see the role of inventory management tools like vAuto adapting? What should dealers be doing now to position themselves for what the next normal potentially is?
Derek: You know, it's interesting because inventory management tools have evolved, right? As you look at vAuto, it started as just core pricing and appraising, right? Really helping dealers get the car and then price it. And you see, we've continued to push into merchandising now, connecting into all the marketplaces and anywhere that car is visible online and making sure you're merchandising that in the best way possible.
We've also pushed into acquisition, right? And looking at all the channels you can be acquiring, bringing all those vehicles in, helping you search, filter and drive a much more streamlined process. I think the same goes as you think about the evolution in EVs and subscription models. Certainly with EVs, they're similar in a lot of ways, but very different when you think about how they age and what's a value.
You know, the battery is such a concentration of value on that vehicle. And so bringing the ways that you can appraise that EV into inventory management, that's already happening today. And we have very much empowered our dealers with vAuto to do that.
As you look at the other models you cited, you know, with subscription models and the like, it's how do you continue to bring the insights of how you're deploying your capital on your inventory to drive return for the dealership? That inventory right now is a flywheel. It has so much more impact than just used car gross. It has my recon, my detailing, my F&I, right? It's all dependent on that key revenue stream.
And I think you'll see that with this evolution of models of how the dealer supports a consumer, you still want to make sure you're getting your ROI for whatever investment you're putting into your inventory. And that's where vAuto will continue to be your partner in how you track and measure the return on your investment for your inventory.
Zach: So follow up to that, many dealers worry about risk, excess days supply, aging units, margin erosion.
In your view, what is the next frontier of risk management in inventory that dealers may not be embracing yet, but they should?
Derek: Yeah. And to me, you know, when I think about risk right now, I think data. It really is.
It's the data they're using to feed their tools, to feed their insights, to drive their business. Right. And that can be the data.
Certainly vAuto is focused on that. We cleanse, scrub and pull the most vast amount of data from the industry, 5 million bins a night. It can be within your own rooftop dealer data, right? We've been partnering with a client this last week.
We were talking about how they want to grow their acquisition process and they're not seeing the performance they want to see. As we looked at it, they had several of their appraisers that were not closing appraisals for vehicles they knew they weren't going to acquire, which was skewing their metrics. It made them look like they were doing a better job of acquiring every car they had the opportunity to acquire.
When in fact, the dealer's behavior, the processes within the dealership were skewing the data. And so again, the data is the risk. Making sure you're clear, you're cleansed and you're disciplined with your data that will then inform how you can continue to grow your business and whether whatever the industry has coming our way in the future.
Zach: So for independence versus franchise groups, do you see different innovation adoption curves and how can smaller, let's say independent dealers, stay nimble and competitive while larger groups maybe have more capital, more access to technology, etc.?
Derek: Yeah, I think we're seeing the barrier to entry on technology lower. And so that, you know, provides an opportunity for those independents. But I think on the same vein, you know, where we started, we're seeing the scale of particularly groups continue to have outsized impact now in financial performance.
And so that's what the independents are up against as you think about performance. I think to continue to be successful as an independent, you can use technology in a way you never could before, but you have to be nimble and you have to move quick, right? Because you don't have all those revenue streams attached to your used car operations in the way that a franchise dealer does. You don't have the same brand potentially and the same reach.
You don't have the reconditioning potentially or the same F&I opportunities potentially. And so you have to be nimble and quick with how you're merchandising and retailing that used car inventory to make sure you stay ahead of the game. And so you potentially sacrifice some of that gross in the speed and effort in which you stay with the market and ahead of the market.
But I do think, again, I think our independents are more empowered than ever before. And we have tremendous independent clients that are willing to embrace and lean into technology that allows them to compete with the bigger, more established names and franchises in their market. But they can do it by moving quick, by embracing and leaning into technology.
Zach: Well said. And the last segment of the podcast, I want to do a rapid fire segment. So I'm going to ask you three questions and want like a quick kind of one sentence or so answer to each.
So what's the one KPI you think every used car manager should track weekly, daily, like the most important like one KPI?
Derek: Yeah, if I had to boil it down to one, it's the gold standard. I mean, it's gross per vehicle unit or unit vehicle retail. Right.
So that that's the one that is the gold standard. But there's so much that goes into that, as we talked about. Right.
All the different processes that you have to execute. So you have to make sure you have visibility below that. But that's the one if you're going to measure one on the health of how you do it.
Zach: What's one piece of tech you believe is overhyped right now and why?
Derek: Yeah. So this one's a tricky one because it's what I'm most excited about. But it is obviously super overhyped.
And that's AI. Right. I mean, it's the gold rush of AI, as we've heard.
And everybody has an avenue to use AI. But I think you really have to be pressure testing. What is AI doing for you with this given application and how is it improving my efficiency performance return? And if without that pressure test, it's overhyped.
And there will be a lot of instances where the hype doesn't merit what the delivery is. But I think when you can find those avenues where it does move the needle and make a difference, then that's it's going to be a tremendous tool for the future.
Zach: And in one sentence, what would your advice or maybe a short form, what would be your advice to dealers sitting on 60 plus days supply of used inventory today? Well, I think the key is to really know why.
Derek: Why am I in this position? Because I've had a breakdown in process. And we talked about that could be a breakdown in my recon process. That could be a breakdown in my merchandising process.
And I get the eyeballs. It could be a breakdown in my pricing. I'm asking for the moon.
So I really want to understand why what broke down in my process to get me in this state. But I think, you know, the way to get out of that, you got a price to market. You got a price to move and take it and move forward and grow from the experience.
And that's what we partner with our clients to do. And I love vAuto because performance management is such a critical component of how we partner and work with our clients. And that's a key example of how we'd get there with anyone that came that with that problem.
Zach: Very well said, Derek. And I just appreciate you coming on the podcast. You're so knowledgeable, so well-spoken, so impressive.
It's been a blast chatting with you today.
Derek: Well, Zach, it's been my honor and thanks for having me and look forward to staying connected as we continue to watch this this fun industry evolve.
Zach: Definitely.
Derek: Awesome. Thank you.
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