5 Secrets to Improving Car Dealership Profitability in [2022]

5 Secrets to Improving the Car Dealership Profitability

There’s a variety of factors that need to be considered when trying to increase a delaership’s profitability. With a number of challenges presented to the automotive market in recent years, dealerships have to become more creative to kepe those sales numbers up. This time we’re looking at five ways to help boost a car dealership’s profitability. We’ll give you an insight on what to focus on in areas like new car sales, aftersales, used car sales, stock management, and selling additional products and services.

Car dealership profitability is in decline. Over the last two decades, new car sales margins have decreased. There are many reasons:

  • the stock market,
  • manufacturers compete,
  • dealerships competition,
  • the shift in environmental thinking,
  • availability of information for customers,
  • technological requirements.

These factors are beyond control for any individual dealership. Now, it’s time to find out how to improve your car dealership profitability.

Althoug selling new cars may seem more exclusive and enticing, there is a lot of revenue to be made from used cars sales. You might ask – is a used car dealership profitable? How to combine new and used care sales? Luckily, we’re here to give you pointers to shift your focus from new cars to trade-in and used car business.

A good way to find a selling point with used cars, is making the uniqueness of a used car work for you. Increase your car dealership profitability by using the individual quirks as a selling point!

If you put our tips and tricks into good use, chances are, you’ll soon be driving off into the sunset with a smile on our face.

Check the video to get all the 5 tips instantly

What sets you apart?

In all popular segments, you can find similar car models. Brands provide you with a lot more than you even knew you needed. People don’t worry about the quality of the new car, but about the deal they get.

Online matchmaking

Nowadays, people rely on the comfort of Internet to find the love of their life, so why should finding a four-wheeled friend be any different.

Brands and dealerships advertise cars online. The endless options we are provided these days, are driving down customer attention, loyalty, and thus car dealership profitability as a whole. Buyers compare offers and keep brwosing on the next page. It’s now your job to make the potential buyers “swipe right” on your cars and find their perfect match.

Shorter vehicle replacement cycles and sales campaigns give customers more room to negotiate. To stay competitive, you have to be ready to haggle over prices until that sweet spot is found.

Are car dealerships profitable? Below you can see changes in automotive dealership profits. Spot the trends that can help you stay profitable.

Changes in automotive dealership turnover & profits
Changes in automotive dealership turnover & profits

These changes were happening already before the coronavirus crisis hit.

Finding additional sources of revenue and profit

There’s no arguing that new cars get the most attention and marketing resources. However, it’s hard to influence the profitability of new car business. Manufacturers and importers have a lot of control over that department. This is where you need to take control of the areas you can influence.

There’s a lot of money in the used cars segment. To tap into that source, a new car has to hit the road first. Once that box has been ticked, we can start considering revenues from:

  • new car bonuses,
  • cars in service and bodyshop,
  • sale of parts,
  • trade-in and used cars.

New cars are the “crown jewel” of the business. But that doesn’t mean you shouldn’t claim all the profit you can from the used car business.

5 ways to improve car dealership profitability

A British businessman P. Marsden has said business is all about solving people’s problems at a profit. You are trying to figure out how to make our businesses work. Remember, the happier the customer, the greater to profit.

How to make each department more profitable?

1. New car business

  • Maximize bonuses
  • Cater to customer needs
  • Making cars more desirable
  • Cross-selling
  • Selling finance, insurance, accessories, etc.

2. Aftersales

  • Up-selling repairs, parts, lifestyle, and accessories.

3. Used cars

  • Trade-in profitability: the price difference between a newer, less-used car, and a traditional used car.

4. Additional products and services

  • Offering extended warranty, electricity packages, etc.

5. Active stock management

  • Optimize which new and used cars to buy to meet market demand. Bring vehicles to the market efficiently by spending less time preparing them. Use correct pricing, good photos, and videos. The goal is to sell cars fast.

By the way, did you know that when customers service their car regularly at your dealership, they are 86 times more likely to purchase their next vehicle from you? Definitely worth considering.

Take care of the “underdog”

Trade-in and used car sales are treated as the ugly duckling of the business. They’re considered risky and hard work. In reality, you can turn those areas into the most profitable part of your business.

Opportunity in uniqueness

The uniqueness of used cars makes it hard for buyers to compare offers. This opens a way to make more money by cashing in on those quirks.

In the US, the National Automobile Dealers Association data shows, the average used car sales in 2019 saw a gross profit of over $2,000. This is almost twice the average of $1,200 on each new car sale. [Source: dealernewstoday.com]

Used car business provides opportunities to increase your car dealership profitability. It links other departments into one circle.

Used car business provides opportunities to increase your car dealership profitability by linking other departments into one circle

The trick to have a profitable used car, you first need to buy it well.

Used car trade-in and purchase process

Overview of used car trade-in and purchase process

This is where trade-in and all related internal tools come into play.

Used car refurbishment and stock management process

Overview of used car refurbishment and stock management process

Buy low, sell high

Make sure to set up a transparent and trustworthy appraisal experience for the new car buyer. Prove why they should take your offer. Make them feel confident about your price for both the used and new car.

Transparency helps improve customer satisfaction, closing rate, loyalty, and profitability. Improve your dealership results by giving your customers what they want.

Used car business is awesome!

The possibilities to make money from the used car business are endless. But risks need to be minimized.

The evaluation, buying, and selling processes should be controlled. Don’t leave any holes for customers and profit to slip out from.

The need for speed

Make money from the used car business with a motivated used car manager—someone who combines statistics with experience and runs the business like an entrepreneur.

Start an efficient used car evaluation process.

Key areas of a successful used car operation are:

  • timely and correct evaluations,
  • successful trade-in negotiations,
  • stock management.

Keep cars coming in, sales flowing, and inventory moving. Errors lead to delays, mistakes, and missed opportunities. There is no room for that.

Speed is of the essence. Keep your average used car stock days below 60 days. Try and sell about 55% of your inventory in 30 days.

Liquidate vehicles over 90 days in stock. Money costs money. Used cars generate technical issues on your lot. Market value drops with each day. The average monthly cost is about 1.5-2% of the buying price.

Way to success

Put this plan into action with a modern data management system.

A data management platform, such as the Modera Trade-In app automates and supports the evaluation process. Trade-in app is also linked to the Modera Dealer Management System Salesfront.

The app helps you work in a timely, easy, and controlled manner.

  • Take pictures for reference
  • Use external databases for research
  • Share information with colleagues
  • Store data

By identifying all the players involved in the evaluation process, the app helps make the process smoother. Involved parties include the new and used car departments and the customers.

To understand the market, evaluators can use the app to compare similar vehicles on the market.

It is useful for evaluators and sales consultants during negotiations. Show the customer, what aspects play a role, when preparing a personal trade-in offer for their car.

The Modera Trade-In App’s goal is to make the evaluation process smooth, reliable, and fast. It helps fix the issues that interfere with the sales process.

For more information, see all the features.

Hand on the pulse

Speed is everything in used car sales. Review your used car stock over a weekly meeting. Figure out your chances to sell the cars within the next 7 days.

If the used car is not selling, find out why.

There are two primary reasons—the selling price is not competitive, or the stand-in cost is too high.

Find out the issue and plan your next steps to make a difference over the upcoming week.

Invest in reconditioning

A modern car is easy to operate, so we forget it’s one of the most complex pieces of technology in our lives. A modern car has about 15,000 parts and pieces. On top of hardware, it includes a lot of software.

A car should work perfectly under any physical conditions and climate. Just for kicks, check your smartphone’s user manual and see the temperatures it’s supposed to endure. Hint- there’s quite a difference.

Speed is of the essence. Keep your average used car stock days below 60 days

Give the customers some eye candy

Rising customer expectations make the process of vehicle reconditioning important. Stay in the game by putting your best gear forward.

People like good looking “things,” so sell to the eye. Add on the technical reliability of a used car, and you’ve got a winner.

You can sell properly reconditioned vehicles for more and faster than other similar used cars.

Ensure your used car inventory is in top condition and presentable.

When pimping the ride, keep in mind the costs and preparation time. Don’t spend too much time and money on reconditioning. The goal is to increase your car dealership profitability, not your costs.

Transparency makes the sale

With trade-in business, know the two basics! How much you can the car sell for, and what the risks are.

When calculating the trade-in price, check:

  • the market,
  • the condition,
  • the possible selling time,
  • the background of the car.

Unfortunately, this logic is often not forwarded to the customer. Generally, sales consultants tell the price and how many percentages below the market price it is. It’s always below the market price.

Conflict resolution

When presenting an offer this way, you face immediate conflict. This will make negotiations challenging. Gain trust by having a fairly transparent negotiation process.

Make it clear it’s not you who shapes the market value, but the used car market. Emphasize the details, risks, and time involved.

The Top-Down process for trade-in evaluations and negotiations:

  1. What to do today?
    • Compare offers on the market.
    • Figure out the actual sales price. Should you consider discounts?
    • Estimated time for selling the car.
    • Evaluate the condition of the car.
  2. What to plan for the future?
    • Make an offer based on the above.
    • Explain what’s involved in selling a used car.
    • Close to a deal? Yes—proceed. Too far—be honest and say so.
    • Can you top-up the offer?
    • Make a final offer.

If you did not close the deal, see if the car is still up for sale after a month. If so, follow up. Maybe the owner will reconsider.

Round-the-clock showroom

While the most critical part of the used car business is the buying and trade-in process, don’t forget sales!

Set up your digital showroom online. Catch the virtual traffic from the Internet by assuring a strong online presence. Used car sites are often the first stop for customers looking to buy or sell used cars.

There is more potential GP in a used car than in a new one, so it’s important to market your inventory effectively. Over 80% of your potential customers search for their next car online.

You can sell properly reconditioned vehicles for more and faster than other similar used cars.

Treat used cars (almost) as new cars

We love online shopping, but about 70% of buyers still want to visit a showroom before taking the plunge. Websites don’t provide face-to-face customer service or outline how good the vehicle is. If a customer runs into any problems, they know who, where, and how to contact.

Welcome customers to your showroom. Show interest in their needs and prove that your used car is the best on the market.

Offer customers a test drive. Give them a positive experience, so it’s harder to leave empty-handed.

Not another car salesman

Give the customer a reason to trust you. Make sure all the details regarding the vehicle are correct. Maximize your listings by showing at least 10+ photos of the car. Display both the interior and exterior features.

Up the value of your dealership by offering the customers post-purchase support. A discount for maintenance or a gift voucher for service will do.

Opportunity in used cars

Attention to detail and approach to customers matter a lot in the used car business. The key to a successful business is in the hands of the dealership.

Build a successful used car business by setting an action plan for the best results.

Attention to detail and approach to customers matter a lot in the used car business

The first 3-6 months

  • Appoint an experienced used car manager and evaluator
  • Approach used cars as new cars
  • Display the uniqueness of the cars
  • Implement the top-down principle for evaluations
  • Develop tools to evaluate and calculate the purchasing terms
  • Set realistic GP targets
  • Follow a transparent negotiation principle
  • Make the new car department work closely with the used car department
  • Implement used car funnels and add trade-in to your sales funnel report
  • Focus on used car reconditioning and detailing
  • Develop a guideline to prepare used cars for sale
  • Take quality photos of the cars
  • Save important data to your dealership (CRM) database
  • Manage stock

Make quick decisions to move aging units to release cash. Re-invest it into a new profit-generating unit.

One dealer group doubled the sales of used cars and GP per unit by implementing these steps.

The next 6-18 months

  • Check for any loopholes in processes
  • Support internal co-operation
  • Set a trade-in target for the new car department
  • Follow up on preparation time and cost
  • Make your used cars visually appealing
  • Check stock management
  • Manage sales
  • Check showroom standards

Upsell the used car customers. Think insurance, accessories, warranties, etc. Include them in newsletters and campaigns.

One dealer group increased their new car trade-in ratio from 24% to 47% in 12 months by following these steps. They cleared their used car stock of all units above 120 days.

Used car business may bring some rain, but there is a pot of gold waiting at the end of that rainbow!

Rule the used car business

Value is not only in all things shiny and new. If you need more convincing, think of the value hidden in the trunk of one car! Sell the car. Service and repair it. Trade it in. Resell the car. And the cycle goes on and on.

Numbers don’t lie.

See the difference between selling new cars, service, and repair or starting the above loop. You won’t be needing help from a rocket scientist to understand how this will increase your car dealership profitability.

Focus on the ugly duckling and fly to success on that profitable swan!

Photo by David McBee from Pexels

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© 2024 Modera Ltd. All rights reserved.