Used Vehicle Market: Are You Getting Your Fair Share?

Randy Barone
Contributing Author

Wednesday, August 30, 2006

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The latest 2005 reports on used vehicle sales show that they are up – and will be for the next several years. Historically, a dealer’s used car business has always had the strong potential to play a significant role in the profitability of the overall store. Now, more than ever before, it can bolster a dealer’s success substantially.
Many auto dealerships, though, are missing out on related high profits. In fact, dealers often sell at least two new vehicles for every used one. Used vehicle sales at these dealerships could easily be doubled without negatively impacting new car sales. I’m talking a true increase over and above the dealer’s current sales pace. How? By paying closer attention to “trade closing ratios” and implementing automated systems. Consider this: every few miles, in virtually any direction of a typical new franchise store, there is an independent used vehicle dealership that is selling wholesaled vehicles to customers “lost” by the new vehicle franchise. Basically, independent used vehicle dealerships exist because of poor used vehicle sales practices of new vehicle franchises. The answer? Know your store’s “trade closing ratios” – the percentage of vehicles appraised verses vehicles actually traded. Those who don’t keep adequate tabs on this vital information are missing out on business – in both new and used car sales. Strive for a “trade closing ratio” goal of above 45 percent. This means trading for 45 percent of all vehicles appraised.
The most cost effective and efficient way to keep track of the trade closing ratio, and ensure that it is being achieved, is to use an automated system. A fully-automated process can be extremely beneficial in helping you manage your trade ratios. They also provide: Used vehicle sales and inventory management reports that shows dealers which product they need to stock to have 80 percent of inventory turn in 22 days or less for good-to-great profits. Appraisals that provide the ability to monitor several locations at once and assure that every trade appraisal is data-backed. Alerts regarding when a vehicle being appraised is over or under auction, book or market data. This helps ensure that the best decision is made while the customer is still at the dealership. Latest reporting and monitoring so that information can be reviewed regarding single-point or multiple stores from anywhere in the country (not from some outdated Daily Operating Control report). Recommendations as to which vehicles to list online to maximize time and profits. Track record of recon and how fast a vehicle goes from service to being front-line ready. Activity tracking of all sales personnel. In today’s “click of a mouse” business environment, all new vehicle dealerships can realize significant and ongoing profits from used car sales. By paying attention to closing ratios and taking advantage of the benefits that an automated system provides, new vehicle dealerships can effectively manage their inventory and reap many rewards. The latest studies show that dealers using an automated system have increased gross retail profit by 10 percent, reduced wholesale losses by 37 percent, and lessened turn time by two days. If you aren’t using an automated system, think about the impact it could have on your business. Vol 2, Issue 10

View all articles by Randy Barone
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