ASE chairman Mike Jones says it is difficult to get some franchised dealers to focus on used car retailing because of the strong market for new ones. That is surprising, he adds, given that used car return on investment (ROI) – on a rolling 12-month calculation – has been climbing since September 2011.
“With restricted supply of used vehicles keeping prices high, the average dealer increased their return to over 90% at the end of February,” said Jones. “This dropped back in March as a result of vehicles registered during the month or changes in demonstrator stock. Returns are once again on the rise.”
ASE’s UVP (used vehicle profiler) tool helps dealers improve their used car performance. Data from the system demonstrates the cost of holding on to used cars.
“If a car is not turned within 45 days, the average dealer drops below our benchmark of 100% return on investment,” says Jones.
“This is slightly concerning because the current average ‘used car days in stock’ across the UK is once more over 60 days.
“Dealers see they are not making significant losses selling these vehicles until they are over 90 days old, but additional profit opportunities from recycling that cash into fresh stock are being missed.” Jones said that based on return on investment (ROI) – effectively profit on a car divided by the cost, multiplied by 365 and divided by the number of days in stock – dealers make significantly less profit from fresher stock than from older cars.
“Based on this measure, we can see that cars sold within 180 days of their first registration return a much smaller return on investment than those between two- and four-years-old,” he said.
“The most proactive dealers are actively targeting their database to purchase these cars and buying them back from other dealers when a customer has decided to go elsewhere for their next new car.
“At least by retailing the used car there is a chance of keeping the aftersales customer within the dealership, in addition to making the profit on the used car sale.”