A Strong New Car Market Reveals Two Kinds Of Used Vehicle Retailers

May 30, 2014

“If you’re not getting better, you’re getting worse.”

lexusI’ve heard this quote from Velocity dealers as we discuss their used vehicle operations. For them, the line is really a mantra that drives continuous performance improvement and ongoing gains in used vehicle sales and profitability.

The quote came to mind this week while reading an Automotive News story about dealers who have made used vehicle sales volumes and profitability a top priority—even as new vehicle sales and profits are strong.

The piece highlights efforts by dealers— including Velocity stand-outs John Malishenko, COO of the Germain Motor Co., and George Athan, vice president of sales for DCH Auto Group—to become even more efficient and profitable as they acquire, recondition and retail used vehicles.

The article emphasizes these dealers’ efforts to source vehicles more effectively:

At Germain, Malishenko and team are aiming to acquire 60 percent to 65 percent (up from 40 percent to 45 percent today) of their used vehicle inventory from trade-ins. They plan to achieve this objective by making market-transparent offers up front, rather than holding back to pad gross profit.

At DCH, Athan and team have turned away from live, physical auctions in favor of online auctions to obtain the used vehicles they need. The article quotes Athan explaining the shift: “When we do it online, we don’t have to waste our precious resource, which is our people, leaving the retail operations, driving to auctions and spending a day or two at auctions. We can research the vehicles much easier and quicker in an online environment. We can go from the East Coast to the West Coast if we are looking for specific cars.”

But while these dealers work to improve their used vehicle performance, some dealers seem headed in a different direction.

The article notes that even among the industry’s biggest dealer groups, the goal of a 1:1 ratio of new-to-used vehicle sales “has slipped the last two years as new-car sales recovered.” Translation: Some dealers are taking their eyes off the ball in used vehicles, preferring the satisfaction of putting more new vehicles across the curb.

This dichotomy made me think of the quote. On one hand, you’ve got dealers who are doing everything they can to get better and better in used vehicles. On the other hand, you’ve got dealers who appear to be losing ground in their used vehicle operations.

I don’t consider the situation dire for the second group of dealers at the moment. But, when new vehicle sales volumes begin to ebb and used vehicles become a higher priority out of necessity, these dealers will likely find themselves wondering why the market seems more challenging and difficult.