How Retailers Are Making Used Car Stores Highly Profitable

Fran­chised deal­ers are see­ing huge oppor­tu­ni­ties in used cars – includ­ing start­ing up stores spe­cial­iz­ing in pre-owned vehi­cle sales and some­times under a new retail brand name.

Car­Max has been the largest play­er in the retail used vehi­cle space and has had about 1% share of the mar­ket. That leaves an enor­mous amount of oppor­tu­ni­ty for stand-alone used car stores, said Son­ic Auto­mo­tive Pres­i­dent Scott Smith. Son­ic is rolling out its own used car stores this fall, start­ing in Den­ver.

Used car mar­ket forces influ­enc­ing strate­gic busi­ness deci­sions by deal­ers include:

  • Used cars rep­re­sent a huge mar­ket in the US that’s been large­ly untapped by fran­chised deal­ers. The sales vol­ume can be very large for deal­ers with strong prof­it mar­gins.
  • Used vehi­cles tend to be more prof­itable than new vehi­cle sales, and that prof­it mar­gin has been widen­ing.
  • Fran­chised deal­ers are com­pet­ing direct­ly with inde­pen­dent deal­ers — many of whom were once fran­chised GM and Chrysler deal­ers and end­ed up as the largest used car deal­er in town. Fran­chised deal­ers are step­ping up the game on the used car front.
  • Sophis­ti­cat­ed dig­i­tal tools are help­ing increase deal­ers’ return on invest­ment – includ­ing soft­ware pro­grams, inter­net auc­tions, and mobile device appli­ca­tions.
  • New vehi­cle sales have become less prof­itable par­tial­ly due to car shop­pers know­ing much more about pric­ing through infor­ma­tion learned over the inter­net.
  • Used car sales can also gen­er­ate more parts and ser­vice, and repeat busi­ness.
  • Retail­ers are open­ing up their own used car brand-name stores. Asbury Auto­mo­tive Group will be open­ing two stand-alone used-car stores that will oper­ate under the ‘Q Auto’ brand.

Accord­ing to Nation­al Auto­mo­bile Deal­ers Asso­ci­a­tion data, there’s been a huge gap between aver­age used vehi­cle gross prof­it com­pared to new vehi­cles – about $2,361 for an aver­age used-vehi­cle sale last year and $1,200 on a new-vehi­cle sale. Prof­its on used vehi­cle sales increased 13% last year while new vehi­cles saw prof­its fall 7%.

Deal­ers around the coun­try are see­ing impres­sive results. Ger­main Motor Co. of Colum­bus, Ohio, are work­ing hard on max­i­miz­ing prof­itable used vehi­cle sales. Ger­main installed soft­ware five years ago to man­age their used inven­to­ry; it helped them price vehi­cles to sell quick­ly rather than wait for the best prof­it. That’s brought a 53% used car sale increase.

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