"TURN TO EARN" PROFITS ON USED CARS

"Turn to earn" is more crucial to the dealer's bottom line than ever as sales of pre-owned cars and trucks keep rising while the market levels off for new vehicles.

That was the message emphasized and re-emphasized by one speaker after another at the first "Pre-owned Management Conference" in Chicago - and the caliber of the dealer groups represented affirm the key role attached to inventory management.

"It was true 20 years ago and it's truer now," declares conference keynoter and co-sponsor Tim Deese, president of Progressive Basics, Inc. "How dealers move their used units is the difference between success and failure. Turn 'em in 60 days or pay the consequences!"

Preowned managers from Hendrick Automotive Group and Sonic Automotive and a Southeast Toyota regional sales manager added how-to specifics to Mr. Deese's advice. They stress the values of "certified" programs, manager selection and inventory analysis.

But what they and others kept reminding the audience of dealer principals and used-car managers is that turning inventory is the key to profitability.

Sonic used-vehicle manager Ed Curry says, "You stand to average $1,800 gross profit per unit if it is sold within 30 days, $1,200 in 31 to 60 days and only $300 at most over 60."

Blandon Prater, Hendrick's pre-owned vehicle chief, cited ADT Automotive data showing the consistent trend of used-car department profits over the past 10 years, reaching $252 per unit in 1999.

That compares to an up-and-down pattern of new-unit department profits, which ranged from a $22 loss in 1995 to a $313 profit last year.

ADT projects the used-vehicle market will rise from 41 million sales to a record 44 million in 2004.

Mr. Prater says, "It's not easy to stay on a 60-day turn, but one thing we've done at the Hendrick stores is absolutely forbid 90-day units, because profits accrue at 60 days or less and wholesale losses rise after 60."

Hendrick rewards its used-car managers with diamond rings for those with the highest net gross, highest net profit and most improved unit sales.

"The used-car managers in our dealerships are the most educated and the highest achievers," Mr. Prater says.

"Good ones are tough to find, but they're worth their weight in gold."

Sonic Automotive views building a model inventory of used vehicles as necessary to decreasing dependence on new units, says Mr. Curry.

"If you don't take a strong position on inventory turn, you could wind up like AutoNation's superstores," he says, referring to AutoNation Inc.'s decision to shutter most of its used-vehicle outlets.

Inventory planning and daily maintenance are the only answers to managing aging stock - the greatest drain on profitability, he says.

He adds, "Ten-day-old cars resold yield a 509% average return on investments, 30-day-olds make 64%, 45-day-olds lose 23% and 60-day-olds lose 92%.

"Why hold a unit for 60 days, only hoping to beat the odds and sell it for a guaranteed loss? Sell a questionable unit ASAP and reinvest the dollars in your fastest-moving units."

In-house certification programs for used units are value and profit boosters, say Randy Filice, used-unit regional sales manager for the Southeast Toyota distributorship, and Dan Creed, national sales manager for BMW of Canada.

Southeast Toyota's 142 participating dealerships (out of 162 in its five-state network) sold 23,696 certified units last year, or nearly 17% of their used-vehicle total, Mr. Filice says.

"The certified sticker added $1,700 to the selling price of a luxury unit and $325 to a budget vehicle," he reports. "In addition, we offered a certified warranty that 52% of buyers took. We're on the way to our goal of 30,000 certified sales this year."

Dealers in high-line brands like BMW "require a certified program because it adds to their profits, gives them an entry-level option, aids in management of off-lease units and enables them to avoid losses in wholesaling," says Mr. Creed.

Don Harris, chief operating officer of ADESA Auctions, urges used-car managers to pre-inspect units before shipping them off to auctions and attend those sales weekly, staying in the same lane for familiarity's sake.

"Pre-describe your vehicles the way they truly are, and you'll come out of the auction the best money-wise," Mr. Harris said.

Management trainer and educator Joseph Lescota, a faculty member at Northwood Institute, says, "The Internet is not likely to become a big factor in used-car sales and good sales people still will be needed to sell vehicles."

Mr. Lescota says dealership salespersons averaged $40,000 a year in 1999 for the first time and advised principals to ask every employee to help recruit new salespersons "because they're the best references and the opportunities are really growing for friendly, productive salesmen and women."

He warns against "pre-judging applicants, especially if they're young. Zero turnover is as bad as too much turnover, and in the used-car department younger salespeople will relate better to younger shoppers."

A second pre-owned vehicle conference, jointly sponsored by Ocentrix and Progressive Basics, is tentatively planned for early December in Las Vegas.