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Guide helps used-vehicle sales fire on all cylinders

November 18, 2010

Used-vehicle sales contribute significantly to the operating profit of a dealership, particularly during times of economic turmoil when sales of new vehicles slump. The NADA identifies ways for dealers to strengthen their used-vehicle operation in a new publication, "A Dealer Guide to Used-Vehicle Strategies and Solutions."

 

Used-vehicle experts generally agree that any successful operation will include four critical elements, all which dealers can control:

 

  • A knowledgeable, dedicated used-vehicle manager
  • An effective, motivated sales staff
  • A well-planned inventory
  • A creative, effective marketing plan

 

Total used-vehicle sales for 2005, including both franchised and independent dealers, as well as person-to-person sales, reached 40 million units. Franchised new-car dealers accounted for about half of those sales, retailing 11.8 million vehicles and wholesaling another 7.9 million vehicles.

 

In dollars, 2005 used-vehicle sales represented 28.1 percent of total sales for franchised new-car dealers, a figure that is consistent over the last several years. The current used-vehicle market, according to the NADA, is a remarkably stable part of the overall dealership operation.

 

What has changed dramatically, though, is the average price per used vehicle retailed. In 1995, the average used vehicle retailed for $11,050. By 2005, that average price had increased to $14,925. The 35 percent increase over the decade roughly matches the nearly 39 percent increase in the average new-vehicle retail price over the same period.

 

The supply of used vehicles is increasing. With improvements in overall vehicle quality, more than 80 percent of vehicles manufactured since 2000 are expected to still be on the road in 2015. That glut should depress prices and force dealers to compete more for consumer attention and dollars.

 

The changing nature of today’s market also makes it important to look closely at the area of financing. As economic conditions become more and more challenging, used-vehicle buyers have a greater need for financial assistance. Dealers with more financing options have more flexibility to meet customer needs and more likelihood to close sales.

 

Personnel

 

In developing a used-vehicle operation, a dealer must consider several positions. Individual circumstances dictate how those jobs are filled, but all personnel must be capable and reliable in their roles. An appendix to the NADA publication offers sample job descriptions for various positions.

 

Salary and compensation structures are important motivational tools for employees. They also are important—and controllable—expenses that affect a dealer’s net profit. There is no one best way to compensate employees, but salaries and any incentive plans should still allow for an acceptable profit for the dealership. Other NADA publications—"Paying to Motivate Update ’05" and "A Dealer Guide to Using Pay Plans to Motivate Your Sales Force"—offer guides.

 

Marketing Strategies

 

Certified pre-owned (CPO) programs have more than doubled since 2001, but they still represent a small portion of the overall used-vehicle sales picture. Of the roughly 19.7 million used vehicles retailed or wholesaled in 2005, Mannheim Auto Auctions reports that 1.6 million, about 8 percent, were certified used vehicles.

 

The NADA guide about used-vehicle strategies also offers tips on Internet marketing and guides readers through three calculations—inventory turns per year, gross return on investment and net return on investment—that should be performed regularly.

 

The guide costs $25 for NADA members, $50 for nonmembers. Call 800-252-6232 ext. 2 to order.

 

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