The Showroom

Pushing Your Used Vehicle Department

August 2008, Auto Dealer Today - WebXclusive

by Harlene Doane - Also by this author

It’s time to treat the used vehicle department as a business, specifically, one designed to earn maximum profits. You likely review the sales, expenses, ratios and trends of your dealership. How much time do you spend on reviewing the numbers of your used vehicle department?

There is hard data to support spending the extra time on improving performance of this important department. The average dealer earns the following percentage of their dealership departmental gross profit from their used vehicle department.

 Domestic 26.4 percent 
 Import     23.4  percent 
 High Line  14.0  percent 

For domestic dealers, there is an even bigger reason to focus on this department. The average domestic dealer earns 42.6 percent of their dealership departmental net profit from the used vehicle department. Unfortunately, the average import and high line dealers haven’t been focused on this department, and their results show it (imports drop to 18.4 percent and high line drops to 1.4 percent).  

This data suggests that there is opportunity for every dealer. Domestics cannot afford to lose focus with that much of their profits driven from one department, while imports and high line dealers should be working to reduce their dependence on new vehicle sales.

The first thing dealers should do to improve the performance of this department is schedule a regular reappraisal of all used vehicles. This is not just a review of your cost against NADA or Kelly Blue Book values; it should also include a review of market prices. The days of purchasing a vehicle at $10,000 and stocking it on the lot with a retail price of $13,000 because you mark all vehicles up $3,000 are long gone. The most successful used vehicle departments price vehicles at the right price.

Technology is now helping with this piece of the puzzle. There are products on the market that scrape Internet used vehicle listings and capture the listed prices. This data allows a dealer to price his inventory more accurately. The smartest dealers are those who price their inventory at the highest point the market allows without overpricing it.

The next way to improve performance in the used vehicle department is to monitor reconditioning costs and the amount of time it takes to recondition vehicles.

 Average Reconditioning Cost per Used Retail Unit
 Domestic $629 
 Import $736 
 High Line $1,357 

If your reconditioning costs are out of line, you need to look at both your reconditioning decisions and the inventory purchase selection process. A problem bigger than the number of dollars spent is often the amount of time it takes a freshly-acquired vehicle to make it to the front line, ready to sell, due to a breakdown in the reconditioning process. If it takes your inventory more than a few days to move through detailing and service, you are losing money.

If you run your used vehicle department as a business within your dealership, monitoring all aspects of it, you can watch your profits climb alongside your used vehicles sales.

Vol 5, Issue 6

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