Used cars will be essential in helping dealers remain profitable through Q4 which will see much lower demand for new car sales.
Sewells’ best practice guide to used car management provides some key points to help dealers manage their used car operations.
Buying your way out of trouble
Traditional perception has it that franchised dealers charge more for their used cars than the independents. They could obtain higher prices because the more affluent used car customer was prepared to pay for the extra reassurance on offer; reassurance underlined by the fran-chise’s approved used branding.
Franchised dealers managed to stay afloat above the murkier depths of the used car trade and charged their customers for the privilege of going upmarket, which is only right and proper. Where there were problems, they were often in the form of a reluctance to write down and liquidate sticky part-exchanges.
Indeed, some of the relatively high prices on franchised forecourts came about because of over-allowances on part-exchanges.
The nearly new car was, and still is, a profitable asset. It helped set the franchised operation apart from the average independent. But there are dangers in relying on a certain type and source of stock and in taking for granted the public’s continued willingness to pay premium prices.
- Danger 1 – Slow stock turn. Do you achieve the benchmark average 45 days’ supply? Do cars in stock 45-60 days exceed 15% of total stock? Do cars over 60 days exceed 10%? If you’re not happy with your answers, overpricing could be a major cause of the problem. Check your competitors to make sure.
- Danger 2 – Your competition has got better. Whether it’s one of the used car supermarkets, a trade centre or a non-franchised specialist, its standards have probably improved and it reaches more of your potential customers. And all the while, your customers are better informed about prices.
- Danger 3 – Your nearly-new supply may not be reliable and values may prove increasingly volatile. Over reliance on own-franchise nearly-new supply breeds complacency and surrenders control to your franchise. Better buying may well be the route to improvement.
If the part-exchange doesn’t fit your retail stock profile, in type, make, age or price – trade it out fast, or mark it down fast. The hit the dealer takes early on is never as painful as the defeat that follows a long and fruitless campaign to sell the unsaleable proposition.
Take a hard look at your whole used car buying policy. It ought to meet two criteria: the right volume of the right retail stock for your business, which complements your new car sales; and keeps control of the operation in your hands, so you can respond with agility to the increasing volatility of the market.
Meeting these criteria means taking part-exchanges seriously. By all means, don’t let useful stock slip from your grasp. But equally, make an objective decision, at the point of appraisal, about whether to trade it or recondition it for retail.
This best practice excerpt is taken from Sewells’ Best Practice Guide on Used Car Management.
For more best practice and information contact Sewells’ brand director John Maslen on 01733 468307.