Slowing new vehicle sales create an opportunity to focus on more profitable used and certified pre-owned units.
After nearly a decade of riding in the back seat, the used car market finds itself at the wheel for the first time since the Great Recession. According to Edmunds, used vehicle sales have increased every year since 2013, and the latest Kerrigan Advisors report shows the new-to-used gap tightening for franchise dealers to approximately 1:1 — the highest ratio in more than 10 years.
This spark has been ignited by dealers and customers. You are focusing on the more profitable pre-owned market as inventory costs rise, manufacturer incentives decrease, and new car margins tighten. Many of your customers are being driven out of the new car market by ballooning MSRPs.
Today’s buyer expects vehicles with the latest technology and safety features. Their preferences have shifted toward light trucks, which includes pickups as well as SUVs and crossovers, and record-high numbers of off-lease vehicles are filling the market with late-model inventory.
Let’s discuss three ways to make the best of the opportunity this situation presents:
1. Manage Inventory and Pricing to Fit Your Market.
New opportunities lie ahead as front-end grosses gradually decline and lease customers approach contract maturity. Lean on your bank and finance company reps to help you seize these opportunities. They can help F&I managers structure financing that makes sense for the customer and allows for customers to add back-end products to help enhance and protect the used vehicle ownership experience.
Finding the inventory customers want can be a challenge. Try to identify a range of vehicles based on your market. Pre-owned luxury may be right for some markets, while value may rule in another. Consider investing in new tools and additional training for your inventory team.
Additionally, reaching out to customers near lease end as well as in-equity retail customers will help raise the likelihood that they will return to your dealership, in turn moving vehicles off the lot and adding cash into your pocket.
As the off-lease, low-mileage supply continues to grow and return to franchised dealership lots, the number of certifiable units has grown.
2. Focus on CPO.
Used cars can have a bad reputation in the minds of some quality-driven customers. Certified pre-owned vehicles have emerged as a solution. They offer newer technology and the peace of mind of a factory warranty.
As the off-lease, low-mileage supply continues to grow and return to franchised dealership lots, the number of certifiable units has grown.
Certifying and reconditioning these vehicles is an efficient strategy to spur more CPO sales, which may eventually result in additional service contract sales and service department volume, helping to produce greater loyalty and profit.
3. Build Loyalty Through Fixed Ops.
Consumers have endless options today when it comes to buying vehicles. The service department is the dark horse in your dealership. It has the potential to drive customers back through your doors for years to come.
Having customers return for routine check-ups and repairs will help develop relationships and trust, as well as add another form of profit to your portfolio. By increasing VSC sales, the vehicles sold off your lot will come back and create a stream of loyalty and revenue.
The rapid growth in used car volume has fundamentally reshaped the strategic position for auto companies in recent years and will continue to become a more prominent force in the industry. Rather than lament the changes, savvy dealers and F&I professionals will view this change as a chance to shift their business to stay ahead of the competition.
Erin Klepaski is the executive director of strategic alliances at Ally Financial.
Kerrigan Advisors is the premier sell-side advisor and thought partner to auto dealers nationwide. The firm advises the industry's leading dealership groups, enhancing value through the lifecycle of growing, operating and, when the time is right, selling their businesses. Kerrigan Advisors has represented some of auto retail's largest transactions and advised more of the largest dealership groups in the US than any other buy/sell firm in the industry. Led by a team of veteran industry experts with backgrounds in investment banking, private equity, accounting, finance and real estate, the firm does not take listings, rather they develop a customized approach for each client to achieve their personal and financial goals. In addition to Kerrigan Advisors' sell-side advisory and capital raising services, the firm also provides a suite of consulting services including growth strategy, market valuation assessments, capital allocation, transactional due diligence, open point proposals, operational improvement and real estate due diligence.
Kerrigan Advisors monitors conditions in the buy/sell market and publishes an in-depth analysis each quarter in The Blue Sky Report®, which includes Kerrigan Advisors' signature blue sky charts, multiples, and analysis for each franchise in the luxury and non-luxury segments.—To download a preview of the report, click here.—The firm also releases monthly The Kerrigan Index™ composed of the seven publicly traded auto retail companies with operations focused on the US market. The Kerrigan Auto Retail Index is designed to track dealership valuation trends, while also providing key insights into factors influencing auto retail.—To access The Kerrigan Index™, click here.—To read the—2023 Kerrigan OEM Survey, click here.—Kerrigan Advisors also is the co-author of NADA's Guide to Buying and Selling a Dealership.
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