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.