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Scots give Southern used car dealers a run for their money

By Dr Richard Parkin

In my previous column for AM, I looked at the factors influencing dealer profitability, in particular how stock turn must be a key consideration in running any dealer business. This month, we will go one step further and look at the different dynamics of used car sales by region – by considering the relative differences in profitability between dealers nationwide.

     
  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.

 
 

There is a measurable structural difference between North and South when you compare like-for-like vehicles in terms of retail asking price, with the South commanding about 4% more. But does this mean Northern dealers are always less profitable on used car sales?

Recent analysis suggests not. Dealers in Scotland, for example, appear to be among the most profitable in the UK, with not only good margins, but crucially the fastest average rate of sale of any region.

By linking together auction prices of approximately 125,000 vehicles with last known retail asking prices during the period from April 2013 to March 2014 inclusive, Glass’s was able to analyse the margins made on each vehicle against the time it took to realise that profit. The analysis revealed some stark differences between the UK’s different regions.

The average value of vehicles being sold, perhaps unsurprisingly, was highest in the South East thanks to a greater proportion of prestige marques and higher trim examples being offered for sale.

 As a consequence, the South East also enjoyed the highest profit per vehicle sold in monetary terms at £2,152, closely followed by East Anglia (£2,095).

 

Average trade cost and margin by region (£)

Average used car trade cost and margin by region (£)
   

 

Profit per unit per week (£)

 
Used car profit per unit per week (£)  
   

However, this does not give a true reflection of dealers’ financial return: any given site has only a certain number of spaces on its forecourt, so the time it takes to sell is also important from both a working capital perspective and the overall profit opportunity for each space.

Taking this into account, when the regions are compared in terms of profit per unit per week (PPUPW – defined as the profit made per vehicle divided by the number of weeks it took to sell) the pattern is quite different.

Although the South East still generates the highest PPUPW, Scotland achieves an almost identical result as a

consequence of a faster rate of sale, which took, on average, one week less than in the South East. Furthermore, coupled with a lower average capital cost of stock – £8,482 in the South East versus only £6,146 in Scotland, about 27% less – the financial returns are considerably higher on average in Scotland.

Similarly, dealers in the North West perform much better by this measure than their average margin value might otherwise suggest, again through a better than average rate of sale.

These observations raise a question around where the optimal balance between discounts (and therefore margins) and rate of sale actually lies.

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