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The Big Picture: Lessons from Las Vegas

At last week's National Automotive Dealers Association (NADA) convention in Las Vegas there were two clear messages. First, dealers are putting too much emphasis on new cars when they should be concentrating on making more money from used. Second, the dotcom bubble has not burst; it's set to reinflate.

Consider the facts in the UK for used cars: 2.65m new cars were registered last year, earning dealers margins ranging from a couple of per cent (in some cases even less) to around 8% on certain premium brands (on average, we reckon dealers are taking less than 6%. However, 7.5m used cars were sold, earning dealers anything up to 10%. Potentially dealers could be making even more, especially if they employ internet-based solutions and websites to widen their marketplace and reduce costs.

The NADA workshop speakers certainly believe so. Topics included: Ideas guaranteed to retail pre-owned cars, Maximising profits in your used car operations, and Selling used cars on the internet. And the exhibition halls were dominated by companies selling IT solutions, dealer management systems and internet products that will facilitate selling new as well as used cars.

Take a look at the AM100: most dealers are selling equal quantities of new and used cars – completely at odds with the annual 3:1 used to new sales ratio. The one obvious exception is Arnold Clark. It is selling almost double, around 110,000 used cars compared to 62,313 new. Chairman Arnold Clark says his company is a used car dealer. They only reason why he sells new cars is because in order to sell used cars in big volumes you need to have the franchise.

If that's not enough to convince, consider this: focusing on used cars will help you sell more new cars. How? By having a coherent used car purchase policy, and trained sales staff who can accurately price up trade ins, residual values will improve. This will reduce the cost of ownership so benefiting buyers of new cars.

Stock turn is essential. Too many dealers fail to appreciate they are losing potentially thousands of pounds by keeping cars on their forecourts for weeks, and sometimes, months on end. Not only is value of the car depreciating, but they are missing out the margins from other cars that could be filling that parking space. Forget a 60 or even 90-day policy; cut your losses on any car after six weeks tops – get it off your forecourt and into auction.

Using the internet to sell stock to customers means cars can be moved around the country according to demand. This will significantly widen your marketplace, and help to boost stock turn.

If you aren't retailing at least 1.5 times your new car volume, you need to make a serious reassessment of your used car strategy.

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