Used Vehicle Profits - Going, Going, Gone?

August 2006, Auto Dealer Today - WebXclusive

by Bruce Thompson - Also by this author

It is a familiar scenario. A dealer encounters a fresh trade, and makes a decision to retail out of that vehicle, wholesale it through traditional channels, or ship it off to auction. In the first case, he has a chance to turn a decent profit, provided that there is consumer demand for the make and model. In the second case, there is a good chance the dealer will take a beating. And in the last case, there are transportation costs and the chance that a UCM or a GM might be off at an auction rather than tending to business at home. The vehicle is off the lot, but so is a key member of the sales and management team.
But I’m getting ahead of myself. Let’s take a look at the current landscape of the used vehicle world.
Throughout 2004 and 2005, dealers watched new vehicle incentives reach all time highs, putting additional pressure on used car pricing. In the period following Sept. 11, 2001, zero percent financing made new cars more attractive than most used cars, and when you factor in the residual crisis of the 90’s, things looked pretty dim for used vehicle retailers. A lot of big banks got out of the financing business and a lot of Residual Value Insurance Carriers went out of business, and all of this activity had an effect used car prices. Fortunately in the last twelve months, as manufacturers found it more difficult to offer 0 percent, used vehicles sales are being revitalized.
But while dealers now have a renewed opportunity to generate activity with used vehicle inventory, they still face some familiar obstacles to high grosses and quick turn.
Ben Gutwein, spokesperson for the Auction Broadcasting Xchange, lists capacity and overhead costs among the top challenges for used vehicle retailers, but notes that many dealers are still in a quandary about what to offer for fresh trades and which vehicles to stock.
When I spoke to Ben, he suggested that “Dealers must learn to differentiate between their core and their non-core inventory if they hope to generate high grosses. That knowledge makes it easier to make a wholesale versus auction decision on the inventory you take in on fresh trade just to get someone in a new vehicle.”
Stocking the right vehicles in limited space is also a serious concern. “If you’ve only got space for 50 used vehicles,” Ben observed, “then they better be the right ones”. His suggestion? “Install and embrace a comprehensive used vehicle management system that will enable your staff to buy and sell intelligently without relying on gut instinct.”
Fortunately, systems like this are now available to dealers, some with remarkable features that allow online alternatives to traditional brick and mortar auctions. When a fresh trade comes into the dealership, the dealer can either retail out of that car or use these new technologies to offer the vehicle to thousands of dealers across the US. There are even techniques that allow for private, “in group” offerings in addition to “out of group” sales. In this fashion, the traditional universe of buyers is increased, along with the opportunity for a greater return.
While brick and mortar auctions remain a viable method of reducing used vehicle inventory, smart dealers are taking steps to ensure that they trade for the right vehicles at the right price, optimizing their chances of a higher gross before this “last resort.” And when the auction option is in play, new technologies such as online alternatives are ensuring a larger audience of buyers, reduced transportation costs and ultimately, more money for the dealer.
Vol 2, Issue 6

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