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Used Car Dealers in Position to Boost Profits as COVID-19 Lingers

We’re in a unique period where the availability of used cars has taken on a vital role in our challenged economy. The COVID-19 pandemic put a halt on new vehicle production as automakers shut down their assembly lines for two months to protect their workers. Most of those plants are up and running again, but new vehicle inventories are still catching up. 

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Pair that scarcity of choice with the fact that so many Americans lost their jobs (and a lot of their income) due to the pandemic and you’ve got a situation where a new vehicle is just financially out of reach. Add into that mix, automakers have cut back on the generous incentives they offered in April and May. All of these factors are leading consumers to used car lots.

According to the Cox Automotive Mid-Year Review released on June 25, used vehicle sales are rebounding from the early pandemic free fall, soaring from an annualized selling rate in March of around 16 million to around 35 million in May.

That sort of sales rebound is certainly welcome, but for dealers facing reduced staff, profit margins are still being regularly challenged. 

According to the National Automobile Dealers Association (NADA), the average sale price of a used car increased 21% over the past decade, from $16,480 in 2010 to $21,103 today. However, that increase hasn’t translated into a boost in dealer profits per vehicles. Between 2010 and today, the average gross profit on a used car only grew 6%, from $2,236 to $2,374. 

That’s a pretty slim margin, but with the right tools and strategies, dealers not only don’t have to live with it — they can vastly improve on it.

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Being Strategic in a Buyer’s World 

The first step is centralizing data. By managing pre-owned and new vehicle inventories from the same platform, dealers can more efficiently match customers to the vehicle they’re most likely to purchase — whether that’s pre-owned or new. In Cox Automotive’s 2019 Car Buyer Journey report, 64% of buyers said they would consider pre-owned options. 

Price, of course, isn’t the only factor driving purchasing decisions. A dealer needs to make sure customer insights can also be collected and analyzed in a single environment by integrating data from both the customer management system (CMS) and dealer management system (DMS) to tailor outreach to each customer.

Secondly, dealers need to simplify their sales process. Consumers have become used to doing more business online from the comfort of their homes rather than visiting showrooms. For that to work well, dealers must keep things simple starting from the first customer touchpoint — a relevant offer. This is often easier said than done. Pre-owned customers tend to be more price sensitive, credit challenged and less brand loyal, complicating the sales cycle. 

The key is for dealers to use behavior prediction tools to quickly and efficiently make sense of complex buyer journeys and match pre-owned prospects with relevant offers to maximize their engagement. 

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To keep the handoff between marketing and sales as seamless as possible, the sales staff must be equipped with those same tools and customer insights to allow the entire team to create a sales experience that is centered around each customer’s individual needs and builds off that very first touch point.

Finally, dealers must stay focused on net profit. According to NADA, the average net profit on used cars last year was just 14 bucks. The situation won’t quickly improve. According to a J.D. Power industry report released June 21, while used vehicle sales spiked over the first nine weeks of the pandemic, prices have remained flat, down just 0.2% from pre-pandemic levels. 

To help maximize return, dealers must work to reduce overhead costs with a key element, working to ensure pre-owned vehicles don’t remain on the lot for too long. 

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Knowing customers who have previously bought a used vehicle are likely to do so again, dealers should use customer purchase data and behavior prediction tools to take greater control of inventory. By matching prospects to the vehicles on hand, dealers can reduce lead time for turnaround and maximize profits per deal.

A simple strategy for boosting profits is spending less to attract new customers by improving loyalty through providing the best possible experience. That’s accomplished through integrating marketing and providing a consistently great experience that keeps customer coming back.

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