Now, more than ever, new-car dealers need to capitalize on every business opportunity. This requires knowing what the opportunities are.
With new-vehicle sales volumes down and projected to remain so this year, most franchised dealers have a renewed focus on their pre-owned vehicle market to bolster profits and reduce potential losses.
A recurrence I've witnessed in my 37 years of retail experience is that when new-vehicle sales decline, the franchised dealers who survive are the ones with strong pre-owned vehicle departments.
I also have noticed how consistent the overall pre-owned vehicle business has been year after year. For a long time, the total pre-owned vehicle industry has been close to 42 million units per year with manageable fluctuations. Conversely, new-vehicle sales can yo-yo.
Annual pre-owned sales have been divided up into almost equal thirds among independent dealers, franchised dealers and private parties selling personal vehicles.
When new-vehicle sales were strong, many franchised dealers took their focus off pre-owned vehicles, but the overall market volumes stayed the same. Missed sales by new-vehicle franchises were picked up by the independent retailers. Lately, we've seen private-party sales jump, aided by the Internet.
Private parties now account for about 33% of all pre-owned vehicles sold. Think about that. One-third of total pre-owned vehicle sales are sold in someone's driveway with no overhead, no warranty and no financing. A couple of years ago private parties actually out-sold franchised dealers. And we are supposed to be the professionals.
If we are looking to the pre-owned department to be an integral part of our survival strategy over the next year, the good news is there is a 25-million unit pre-owned selling segment we're not in but can develop strategies to penetrate.
This was brought home to me in the past year while working with Mercedes-Benz USA on its certified pre-owned efforts.
Traveling from one market to another, I was introduced to many dealers that have in the past done a great job with new product sales, but for one reason or another are managing to retail only a handful of pre-owned.
Within a mile of those same franchised dealers with the poor pre-owned performance, we found independent pre-owned vehicle dealers doing quite well selling used luxury cars. It was not unusual for the independent to be outselling the franchised dealer by 10 to 1.
In a quick, high-level analysis of the overall pre-owned opportunity, we can see two basic strategies to penetrate the other two-thirds of the total pre-owned vehicle market we are currently missing.
First: certified pre-owned. “Factory” certified pre-owned is the one thing we can do that the independents and private parties cannot. No, this is not new but are you really committed to CPO programs in your stores? Is it part of the culture on the sales floor and an integral part of your marketing efforts? If you are one of those dealers still using CPO as just a closing tool, you are missing out.
Second: cheap cars. Many great operators have had a handle on this for many years with “$5,999 and Under” lots, “Bargain Corners,” “OK Car Corrals” and, the ever popular “Puppy Patch,” to name a few.
Take a look at what you are wholesaling. Can you retail some of those older, inexpensive high milers?
They don't have to be the prettiest. But they should be good, sound vehicles. Think of it this way: Would you put your mother in one? Anticipate 80% to be cash deals. Stay competitive; don't overprice these units. Post them on the Web.
In the private-party segment, the average unit price is under $9,000. That's roughly 15 million plus units annually. Why shouldn't we get a piece of that?
Keep your head up and eyes open. Stay up on the balls of your feet and go after the opportunities.
Tony Albertson is executive conference moderator for NCM Associates. He is at firstname.lastname@example.org.