12 of the best ways to boost your dealership’s used-car results

How does your used-car operation measure up?

The way you answer that question may matter more than ever with used-vehicle sales expected to surpass last year and help sustain overall results, despite the forecast of a dip in new-car sales.

“We expect a pullback in the new-car market as rising prices and interest rates push many potential buyers out of the market,” according to Edmunds’ Used Vehicle Outlook 2019. “As a result, we expect there will be renewed interest in the used-car market as a substitute.”

A dozen key performance indicators (KPI) here should begin to give you an idea of where your dealership stands compared to thousands of others, including high performers.

 

043019 IL 12 of the best ways to boost your dealership’s used-car results

 

Cox Automotive addressed KPIs in “Metrics That Matter for Best Dealership Performance,” compiling a list of 12 KPI and best-in-class benchmarks from “vast amounts of data” it collected for the report.

Here is a summary of the 12 indicators that could set your dealership apart:

  1. Used-to-new ratio

“Used retail unit volume equaling or surpassing new retail volume is a foundational correlation of highly successful used-vehicle departments, assuming the dealership is meeting new-vehicle volume goals.”

A great result is 1.25 used vehicle sales to every one new-vehicle sale.

  1. Inventory turn rate

“The highest performers turn inventory every 20 days … Fast inventory turns maximize high-gross opportunities associated with fresh inventory and drive profits in other dealership departments.”

  1. Price to market/market days’ supply

“Top performers embrace the balance between a vehicle’s desirability and its price. They use data to dictate when it is appropriate to ‘go for the gross’ and when the window for profit is short … The data is also a foundational element in inventory acquisition and appraisal processes.”

  1. Mechanical and cosmetic reconditioning time

“Top performers solve reconditioning delays … Speed is paramount.”

  1. Reduced reconditioning markup for older vehicles

“Retail reconditioning hinders vehicle acquisition, especially on older vehicles that tend to be some of the most desirable but also have the highest reconditioning costs.”

  1. Changing dynamic

“High performers understand the drag that packs place on their used car operations. They slow down acquisition, including reducing new car appraisals.” The Internet has changed this dynamic.

  1. Immediate wholesale volume

The best used-car departments “separate the measurements of immediate wholesale, that is, a vehicle never offered for retail from aged wholesale. They look for ways to keep trades … [and] typically have discounted recon rates for older vehicles and few to no packs.” This should be “under 33 percent.”

  1. Immediate wholesale profit/loss per vehicle

“The goal is a small profit/loss per vehicle [about $150], an indication that appraisers are accurately assessing valuations and assumes no inventory adjustments or pack adjustments.”

  1. Aged wholesale loss per vehicle

“Vehicles that were reconditioned and offered for retail but did not sell are likely to lose money.” Top performers separate these “from the ones that were wholesaled immediately and set a KPI for the average wholesale loss on these units. A benchmark of 5 percent wholesale loss allowance is common.”

  1. Appraisal-to-trade ratio

“[This] is the ratio of all vehicles appraised to how many were traded … It is a key indicator of the support the used-car department provides to the new-car department.” It should exceed 50 percent.

  1. Gross return on investment

“GROI is the product of the gross as percentage of the sale multiplied by turn rate. … For a vehicle to make financial sense, the goal is a minimum GROI of 120.” This can be applied to an entire inventory.

  1. Cost to market

“The highest achievers monitor cost to market, which compares the retail value of a vehicle to the total investment in a vehicle, including acquisition cost, reconditioning, transportation, pack, etc. … Minimize costs to enable aggressive acquisition of inventory and deliver maximum ROI.”

For more details, download the report.

Posted in News, Used Cars

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