What to Do About Declining Used Car Profits
Used vehicle sales make up roughly a third of every franchised dealership’s sales every year.
But according to National Automobile Dealers Association data, despite a slight rise in average used car prices, gross profits are declining. In fact, 2016 statistics show that on average a used car sale cost the dealership $52 instead of turning a profit.
That’s obviously not a good way to keep a dealership afloat. But what can be done to fix declining used car profits?
It boils down to diligence before a pre-owned car makes it onto the lot. Knowing what to expect as an average reconditioning cost, purchasing appropriate vehicles, and valuing trade-ins accurately can go a long way towards turning a profit instead of losing money.
Study the Sales Stats
Every used car department should keep track of the reconditioning costs for every unit. With that information, it’s clear which vehicles cost more to get ready for sale, on average at least. If its known how much is spent on a vehicle for reconditioning, it’s isn’t as difficult to find used cars that can make a healthy gross profit.
Know Which Vehicles Sell Quickly
Inventory that spends more than 45 days on the lot should send up a red flag. When a certain style of vehicle or a specific make or model routinely spends longer than 45 days on the lot, it’s probably not in high demand among the store’s demographic of shoppers. What might be a fantastic deal at the auction could rot away on the lot before an interested buyer comes along.
On the other hand, cars that sell well as soon as they arrive should be the target of acquisition. Turn over that spot on the lot more often by knowing which vehicles are apt to sell fast.
Accurately Value Trade-Ins
If Kelley Blue Book and a visual inspection are all that you use for trade-in valuations, you’ll get burned more often. Spend a small amount of money getting the service department to perform a trade-in pre-inspection before you make an offer. There will certainly be a reconditioning cost, and making an appropriate offer based on condition can retain gross profit instead of giving away the farm.
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