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Dennis Galbraith

Dennis Galbraith Chief Marketing Officer

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This Recovery Favors Used Vehicles and Accessories

All economic downturns cause manufacturers to dial back the variable elements of production, primarily labor and materials. These can be brought back when times become good again. This time, plant capacity was cut. That cannot be easily replaced. This will impact sales of used vehicles and accessories for years to come.

Internationally, there is still plenty of excess capacity for auto production. However, what matters to dealers is the production capacity for the brands they sell. Increasingly, dealers may be disappointed in their inability to obtain inventory for hot, new vehicles.

At the same time, the supply of late-model used vehicles is going to remain low for years to come. So where are dealers going to get the product consumers demand? Some of the answer will come from huge bubble of used vehicles originally sold from 1999 to 2007, often combined with accessory sales. Many of these will be reliable for years to come. On average, they will stay in the national fleet longer than their lower-quality predecessors.

Quality is not enough. In order for older vehicles to be worth investing in with parts, service, and accessories, they must be of a desirable style. The vehicles built and sold prior to the spike in gasoline prices that occurred in the summer of 2008 are generally larger than those being sold today. The nation will never again purchase a fleet of new vehicles as large as those sold from 1999 to 2007. Yet the pool of auto buyers is aging and becoming more obese, both contributors to demand for larger vehicles.

Taking advantage of these converging shifts in supply and demand requires four key changes in dealer activity.

1.       Develop a competency for obtaining older used vehicles

2.       Develop a competency for reconditioning older used vehicles for maximum profitability

3.       Develop a pricing, sales, and marketing system that maximizes total gross margins and minimizes inventory days-to-turn

4.       Develop a system for increasing accessory sales related to new and used vehicles

Dealers of domestic franchises have the most to gain from making these shifts. The number of 1999 to 2007 model year Ford, Chrysler, GM vehicles resold each year will dwarf the number of new vehicle sales from these brands for years to come.

Many of these dealerships have the necessary store capacity, including service. The question at the individual store level is whether the organization has the ability to manage this much change at one time. For many stores, slight modifications to the existing way of doing business will result in disaster. Accept that adding older vehicles to your product mix requires large-scale change before making the decision to do so.

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