Making a profit in the used car business is increasingly more challenging. With consumers becoming smarter and having access to more information, plus more options, it seems the only way for dealers to remain competitive and profitable is to change their mindset.
The goal of the average dealer is to make money not only on each car sale, but also on the vehicle trade itself. The problem is, if he can’t retail the traded vehicle on his own lot then he sees it as a loss because he has to wholesale it.
This is old-school thinking that causes the “average” dealer to look at profit at the per-vehicle level. By adapting a new mindset, average dealers can become GREAT dealers!
Every vehicle you acquire is going to be moved, be it through wholesale or retail. The question is, how quickly and through which channel. Used car managers understand that the faster you turn your inventory, the more profit there is to be made. When you design your profit strategy around this fact, you stop looking at profit on a per-vehicle basis, and instead realize the bigger picture.
Profit Begins with Acquisition, Not Liquidation
Finding the vehicles you want and achieving a faster turn with a higher gross begins with acquisition, not liquidation. The more quickly you find the vehicles you know you can sell retail, and of course the less you pay for them is the first step towards greater profit. I think it goes without saying that dealer auctions don’t help achieve your profitable acquisition goals.
When you’re trying to keep your pre-owned lot stocked with high-quality, in-demand vehicles, dealing with auctions can be a costly and time-consuming process. For one, you have to wade through a range of vehicles that don’t meet your needs before finding the right model, in the right year, with the right options. You also risk having your price bid up by competing dealers.
Private party listings are today’s best alternatives to stocking your lot and reducing your expenses. As many dealers already agree, buying used cars from consumers is more profitable compared with auctions and even vehicle trades. By going straight to the source, you acquire vehicles directly from private sellers in your target market, and with lower acquisition costs.
Many dealers balk at the idea of negotiating an acquisition from a consumer not committed to buying from them. They find it difficult and often a waste of time. But this is an obstacle that can and needs to be overcome with proper training and coaching, because your profit lies on the other side of this hurdle.
There are numerous examples of dealers maximizing profit potential through used cars. Not just independent dealers but franchise dealers too, often creating satellite stores or buy centers that make it easier for consumers to sell their vehicles and more cost-effective for dealers to obtain metal.
By adapting to this mindset, dealers will realize a fundamental shift in their business models that leads to higher profits.
Free eBook for Dealers
To help with this, I’ve created a free e-book for dealers interested in deploying a more profitable used car strategy. It’s called the More Profitable Auto Buyers Handbook. In this e-book I explore the obstacles affecting dealer profits in the used car business and how to overcome the hurdles. The handbook also introduces you to different tools available to buyers and how to leverage the right ones for your dealership.
Producer and Host of the AutoConverse Future Mobility & Connectivity Podcast, Ryan began working in the automotive industry in 2001, establishing his roots in online vehicle merchandising before expanding into digital marketing and now multi media for Automotive B2B. You can connect with Ryan on LinkedIn.