Improve profitability at your dealership
More and more dealers are struggling these days to ensure profitability of their used car department. This failure is not necessarily because of poor sales figures.Almost all of the dealerships now utilize advanced tools and technologies that help them purchase the right cars and price them lucratively for the online buyers. In spite of managing higher sales volume, they are not making sufficient profit per vehicle sold.
There are three problematic areas related to the dealers that tend to eat-up the profitability. It is possible to generate greater profits for the dealership by addressing each of these areas. The first step, however, is to identify these problem areas.
Spending too much on cars:
All dealerships are under severe pressure to keep their used car department well stocked. They are purchasing wholesale cars in a market that is extremely volatile. While purchasing used vehicles from trade-ins and auctions, the dealerships must calculate how much they can earn by the car’s sale. Retailers like clothing store owners and grocers often use this technique to determine how much they should pay for the products they are selling. This is a more accurate method of finding out how much should be paid, instead of trying to determine the return on selling a sluggish stock to a reseller.
It has been observed that the most successful dealerships are the ones that purchase at an average cost of eighty percent to market. As a result, they have a twenty percent margin to generate gross profit after taking care of reconditioning and other expenses.
Limit your number and amount of discounts:
Some dealers complain that their gross profits are significantly lower than expected in spite of spending judiciously while procuring the vehicles and keeping all costs under control throughout the reconditioning process. In most of such instances, the sales department happens to be the area of concern.
In most of the dealerships, the sales department regularly offers discounts worth hundreds of dollars on the cars’ asking price. Instead of relying on hefty discounts to make sales, they should try to convince the prospective buyers by highlighting the USPs of the vehicles and justifying the price. If required, they can share the latest market reports with the customers to make them understand that their asking price is completely fair. This, in turn, will help them avoid paying blanket discounts on each of the cars.
By implementing these practices, dealerships should be able to minimize or eliminate the lowering of profit margins at the sales department and increase the dealership’s average gross profit at the front end.
High reconditioning Expenses:
There was a time not so long ago when the dealerships used to spend around one thousand dollar to recondition each car without any hesitation. However, now, there are many ways to reduce these costs without any negative impact on the quality and reliability of the cars retailed.
Whenever appropriate, the dealerships must use non-OEM parts to cut their cost. Replacements of brakes and tyres or any interior/body related work should only be done when it will translate into a good profit by selling the car. In case a car requires a significantly higher investment compared to standard reconditioning cost, the dealership should try to wholesale it.
Failing to keep track of the auto reconditioning steps can be an expensive mistake. Though it may not be the easiest of things to do, it is extremely important to keep track of time and money spent on steps such as inspection, approval, body shop, profitability, detailing, mechanical, and others. Track each of these reconditioning steps accurately because all of them add value to the cars.
Simple Recon can help you perform this difficult task rather easily with an advanced technology that clearly identifies the departments that are too expensive for the dealership. It also generates comprehensive reports on real-time basis to help dealerships address their inadequacies. To find out how Simple Recon can improve your dealership, schedule a demo today.