One eye-opening stat from this year’s second quarter earnings reports among publicly traded automotive retailers is a significant move toward used vehicle sales.1 This change reflects a larger shift in the U.S. retail industry as consumers seem to be placing greater value in buying used over new.
The reasons behind the trend are logical, but understanding how to capitalize on the shift in demand can have a huge impact on profitability.
Why Are More Car Buyers Opting for Used Vehicles?
As interest rates rise, transaction prices increase, and the overall market cools, the automotive retailing marketplace is prime for pre-owned vehicle sales. There are three common reasons consumers opt for used over new.
1. They’re Able to Save Money
This is probably the most obvious reason to buy a used car. Depending on the age of the car and how many miles are on it, you can get a great vehicle at a much lower price point than buying new, and consumers are aware of this. But, the shift toward pre-owned has to do with more than the initial cost of a new car.
Remember that a vehicle’s value depreciates 40-50% within the first three or four years of ownership.2 That means half of the money invested in a new vehicle is gone after just a few years. Many consumers are no longer willing to take this loss.
When someone buys a used car, they can typically get it for almost half of the original price — thanks to that new car depreciation — meaning the loss they take isn’t nearly as harsh. During the first three years of ownership on a used car, the vehicle only depreciates about 25% from a much lower starting price.
2. They Can Afford “Better”
Because pre-owned vehicles are less expensive, more people can afford to “buy better” — whether that means a luxury brand or the fully loaded top trim level of a mainstream brand. The upgraded amenities push the vehicle out of the consumer’s price range when new, but buying used allows them to get into a nicer vehicle.
3. They Can Check Vehicle History Reports
Thanks to the internet, it’s never been easier to check on a vehicle’s history and safety record, removing much of the uncertainty around used vehicles. Services such as CARFAX and AutoCheck give used car buyers the confidence they need to take the leap.
What Opportunities Can Dealers Find in Selling Used?
Along with this renewed focus on used vehicles comes an increase in the challenges dealers have always faced when it comes to moving used inventory. Whether it’s finding profitable inventory — not always easy when you combine low margins with the cost of vehicle inspection and advertising — or knowing which buyers to get that inventory in front of, thriving in selling used vehicles is no simple task.
However, for the proactive and enterprising dealer, this consumer shift also opens up brand new potential for increased revenue, increased profit and dealership-wide improvement for the sake of running a more efficient, cost-effective operation. Let’s take a look at how you can make the most of these opportunities.
Use Data to Maximize Your Pre-owned Vehicle Strategy
Most dealers have access to tools that help with purchasing and pricing used vehicles, but that’s only half of the equation. Combine this with a custom marketing strategy leveraging first-party data to maximize return on advertising spend, and suddenly every vehicle in your inventory could be more profitable.
Acquire Quality Vehicles from Your Own Customers
We said before, finding profitable used inventory is difficult and complex. Not so much, though, if you know the vehicle’s complete ownership details and service history. Having a system in place to know which of your service customers are in-market to upgrade their current vehicle allows you to approach them with an offer that benefits you both — they get a new vehicle with a deal designed especially to meet their needs and you sell a new car, retain a loyal customer and acquire a desirable used vehicle ready for the next buyer.
Capitalize on a Good Reputation
How you are perceived online defines your business to potential customers. Proactive reputation management helps your dealership increase loyalty by resolving problems and saving customer relationships. It also turns any potential negative reviews into positive ones by improving the customer experience.
Leverage social accounts and reputation monitoring technology to find out what people are saying about your dealership online and give cautious consumers a sense of trust before they decide to come to your store.
Capture More Customers Online
Today’s car buyers conduct thorough research on where they can find the best deal or to find out what best meets their needs.
This presents an extra layer of challenges to used vehicle sales, given the vast numbers of third-party websites that buy traffic and competition with small used car lots and private sales. However, there are solutions in place that can turn this into yet another opportunity by capturing digital attention, driving traffic and ultimately bringing in more revenue.
A proactive digital strategy can showcase your inventory and use online consumer behavior and search intent data to find new shoppers. By using search ads unique to your inventory and driving those searchers to specific vehicle detail pages — perfect for gathering information on each pre-owned vehicle on your lot — you equip shoppers with the information they need to make the best purchasing decision while presenting your operation as helpful, relevant and professional. Customized search, display and retargeting strategies generate more website traffic and conversions because the customer found everything they need to make their purchase.
With today’s renewed focus on used vehicles and more consumers joining in that shift, dealers must capitalize on new opportunities in the used market. Is your dealership aggressively enhancing its inventory profitability and digital presence?
Finding a trusted vendor partner makes this process much easier as they can align your used vehicle inventory and strategy with consumer demographics and behavior to maximize return on advertising spend.
Used vehicle sales might present a complex set of challenges, but for those dealers ready to capture demand, invest in the right tools and take a proactive approach, there is also a wealth of opportunity.
Chris Walsh, vice president and general manager at Naked Lime Marketing