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Car dealers should focus on used car stock turn, not profit margins

By Dr Richard Parkin

It’s a competitive world in the used car sector, but despite the more positive news that the industry is predicted to grow this year, many dealers are still too focused on used car margins and aren’t paying enough attention to stock turn.

     
  Richard Parkin, Glass's
 

Dr Richard Parkin is director of valuations & analysis at Glass’s, where he coordinates the editorial and analysis team. Prior to joining Glass’s in 2012, he spent six years as a strategy consultant at Ernst & Young, with a focus on the automotive industry.

 
 

To maximise profitability, dealers should be focused on the profit made per forecourt space each week rather than on the margin made on a vehicle.

Glass’s studied a basket of vehicles over the course of 2013, monitoring the trade and retail prices in each month for a three-year-old/36,000-mile example, along with the average selling days. Astonishingly, the typical difference between trade and retail prices in any given month varied by as much as 25%, or about £500 for a typical B segment car.  However, once the average time elapsed between trade purchase and retail sale was allowed for, the actual achieved gross margin showed a more consistent picture.

Such findings reinforce our view that trade and retail guide prices need to be derived from independently moving sources of data, otherwise this true behaviour is not captured.

Why used car margins do not give dealers the full picture

A consistent margin picture across 2013 suggests dealers are thinking about the gross margin that can be made on a vehicle acquired at trade, and adjusting their bids accordingly.  However, Glass’s believes dealers are not getting the full picture.

The gross profit realised by dealers did not appear to be influenced by the change in selling days, and so the profit a dealer could make from each forecourt space in a week was at the mercy of how long it took to sell any given vehicle.

It is clear many dealers have not focused on selling days, possibly as a consequence of trying to hold on too long for too high a price. Not going in at the right price wastes time on the forecourt and reduces profitability; judging what the price and the hold period should be in a given locality is almost impossible without the right data.



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Comments

  • sgcb - 29/05/2014 14:51

    THOSE WHO CAN,CAN! THOSE WHO CAN'T TEACH

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    • Trooper - 07/06/2014 08:54

      @sgcb -

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    • Trooper - 07/06/2014 09:00

      Also those who CAN and HAVE ......PASS IT ON it called passion....bitter ay we?

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  • Peter piper picked a pepper - 29/05/2014 16:58

    Lol

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  • Jim Reid - 29/05/2014 21:43

    The motortrade is a much more complex place than Dr Richard points out! There are so many variations of what to buy why you buy it and the reason for buying it at that price! Data is just that, historic numbers that should be collated to help dealers make more profit rather than patronise them by posting such a simple sweeping statement ! Profit is king and without it nothing grows, maybe Dr Richard should spend a little time with dealers to fully understand their situation and reasons for their chosen stock! Data is a tool that should be used alongside experience of the local marketplace. Turnover is an important part of the complete picture but not the only part!

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  • Passerby - 01/06/2014 10:03

    So.... Turning all your stock at 0 margin every month is the key to success? Well done.

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  • Paul Chitty - 02/06/2014 21:12

    You cannot take your eye off either. What about F+I, staff costs, number of deals, CSP ? You cannot have a great stock turn if the cars have too little margin or you'll be a busy fool and soon a bankrupt one !

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  • Matt Smith - 11/06/2014 08:13

    Great article

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