If you’re in the business of selling used cars, April’s showers may not bring May flowers unless you have the right tools and strategy in hand. Profitable trade-ins and eager buyers will disappear soon, so the automotive remarketing forecast calls for diminished profitability and increased inventory.
Proprietary data collected from more than 2,000 dealerships shows that the average total gross profitability for used vehicle sales peaks in March and declines through the remainder of the year—a trend that will be exacerbated by more than 800,000 lease maturities hitting the market. A prepared dealer will have plans to take advantage of this inventory influx.
To manage heightened inventory levels, lean on technology partners to identify lucrative remarketing opportunities and develop sound exit strategies for vehicles you’ve acquired.
1. Maximize profitability
Your priority should be identifying “core” vehicles: models that sell fastest, most consistently, and most profitably. These vehicles are prime remarketing opportunities that ensure quick and profitable sales, reducing your overall risk of wholesale losses.
A top-performing dealership’s inventory is composed of 40% to 50% percent core vehicles. An average dealership’s inventory hovers around 29% core vehicles, and drops lower when accepting noncore trade-ins in exchange for closing new car sales.
In today’s fast-changing market, a fully integrated inventory management platform is a requirement. Use a fact-based approach: Analyze purchase behaviors not only at stores, but also across brands, group partners, and geographic regions.
2. Build a strategy
Data shows that used-vehicle front-end gross and dealership appraisal close rates decline in the second half of the year.
By using a data-driven strategy to price vehicles in line with prevailing market trends, sellers protect themselves by increasing vehicle turns, which reduces the likelihood of profits eroding from wholesale losses.
3. Leverage data
By using their technology partner to seamlessly link across departments, dealers are empowered to integrate complex data sets, which nurtures customers and prospects throughout the sales process.
Following heightened first-quarter sales, dealership inventory levels rise by a total of 10% through the end of the year. A technology platform can help you:
- Decrease the amount of time vehicles remain in inventory, and
- Maximize front-end gross profits.
Careful examination of a vehicle’s daily profitability is a dealer’s secret weapon.
To prevent significant wholesale losses, develop a 30-day strategy for releasing inventory. Consider transitioning inventory to a group partner. If a noncore vehicle has lingered too long, parse data to create an exit strategy, which will achieve a balance between discount and profit based on current trends.
Limit the storm’s severity
The approaching down cycle is predictable, but if you are prepared, you can weather the storm. By preparing with core modeling, smart inventory purchases, exit strategies, and data-driven decisions to maximize profits, your store can emerge stronger than before.
For full remarketing insights and trends, download the Market Action Guide at DealerSocket.com.
Michael Waterman is DealerSocket’s divisional vice president. With more than 20 years of automotive experience, he offers a unique blend of retail, wholesale, and software expertise. Mike can be reached at [email protected]. Visit DealerSocket at NADA 2016 at Booth #2477C.