Are dealerships working on an outdated model of success when it comes to profit with used cars? What, if anything, is squeezing profitability from dealers with used cars? With so much talk about margin compression, you’d think the future for auto retailers would be bleak. But is it?

That depends not so much on who you ask, but what you ask.

Margins from new car sales have all but disappeared. This has forced franchise dealers to rely on bonuses and incentives from the OEMs. It has also caused savvy dealers to focus more intently on used car sales, and fixed ops.

In a recent conversation with DrivingSales Member Chip Dorman from Torque Analytics, Dorman poses some tough questions to auto makers:

“Why would a dealer want to pursue razor thin incentives with new cars when the used market is more lucrative? If dealers are going to be able to fully engage with customers and promote new cars in the way OEMs want, then OEMs need to make products people want to buy, and make them profitable for dealers to sell.”

Make [products] profitable for dealers to sell. That is the KEY CHALLENGE.

Today's buyer is savvy. He/She knows there’s more value – and more wiggle room – in buying a used vehicle. Dealerships know this too, and try to work both ends, often pushing the more lucrative sales of used cars while treading water and doing the bare minimum new car business to keep the OEM happy.

It’s a tough line to walk and it’s one that doesn’t always make sense. It leaves dealers wondering if they’ll ever get the help they actually need from OEMs.

Chip keeps it simple, stating…

“OEMs need to show some discipline and understand that without the dealers, they’re toast.”

3 Ways to Increase Profitability in Used Cars

Looking ahead to 2019, I asked Chip what are the top three things he thinks dealers should be thinking about this year. Specifically as it pertains to profitability in used cars. He said…

1. Buy right: Used Vehicle Acquisition
2. Time-to-Line – Under 72 Hours
3. Dynamic Inventory Ads on Facebook and Google

Essentially, it comes down to working smarter, not harder, and utilizing the tools and resources that exist. Dealerships willing to change the way they approach profit in used cars at both the Big Picture and Per Unit levels will find ways to cut losses and improve inventory.

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