How do you continue to maximize opportunity in a used-car market that has experienced healthy growth over the past few years? Speed. Profit. Innovative practices. Inventory management also remains a vital element in detecting continued growth, and technology is now a central focus in helping dealers sell more cars.
There are a number of inventory management challenges that are faced by dealers. For one, increasing used-car supply places a larger focus on inventory, as well as days-to-turn. Secondly, the same increasing supply challenges will naturally make it more difficult to make higher profits when prices and values fall further.
Prices are still at strong levels, but changes are coming. The used-car industry is still benefitting from historically low depreciation rates, with an industry average of -13.5% expected in 2014 and still below the average annual pre-recession rate of -15.0% according to Black Book analysts.
Despite these statistics, franchise dealers must still keep their eyes on the road because new challenges facing the industry are poised to create pressure on maintaining profit margins. Let’s take a look at three main challenges and what franchise dealers can do to overcome:
Changing supply levels – The continued growth in new-car sales means more trade-ins will be coming onto the lot. According to Fitch, dealers had a 63-day supply of used vehicles on their lots at the end of 2013, up from 59 a year earlier. This growth is expected to continue throughout 2014.
Off-lease inventory – Leasing is back in a big way. But this also means lease returns are coming back in a big way. Dealers must shed this excess inventory and minimize losses through a number of channels, in addition to traditional CPO programs.
Impact from a changing wholesale market – Technology, multi-platform auctions and the feel of a new “virtual industry” are reshaping how wholesale inventory is bought and sold for dealers.
Ultimately, each of these three challenges can impact dealer profit. As in other industries, technology can offer a solution.
Never before has there been such a convergence in how used cars are bought and sold through wholesale and retail channels – in online and offline environments. Dealers today must work quickly to bring in and sell more inventory, all while continuing to make a profit.
Mobile technology allows dealers to see a 360-degree view of their complete inventory lineup. New tools offer dealers a multilayered look at their inventory so they can make quicker decisions on cars that they want to bring onto the lot, or equip themselves with information that helps them sell a car at the right profit margin.
Access to this real-time information is critical because of the speed at which today’s industry operates. Dealers can see how pricing adjustments impact their purchase and sale prices in real time, whether they’re deciphering wholesale, retail or trade valuations.
This technology also has the ability to mitigate off-lease inventory risks. As franchised dealers look to shed more off-lease inventory at wholesale, mobile technology can provide them with the right valuation information so that they can price the car competitively enough to maximize wholesale potential.
What’s more, mobile app features allow dealers to capture a multitude of vehicle details at auction, such as vehicle color, price, condition, photos and even videos, and share with pre-determined retail buyers in real time. This activity helps the franchise dealer manage inventory, sell at the right profit level and elevate customer satisfaction, all while keeping days supply and days-to-turn levels in check.
A higher days supply level can make a significant difference for the franchise dealer. When a vehicle approaches the 60-day mark on the lot, it hasn’t sold primarily because of one of two reasons: It wasn’t priced right, or condition issues on the vehicle.
Mobile app technology helps dealers find the right market value for the vehicle, particularly if a dealer is looking for market value in a specific region of the country. Knowing the right sale price in a different market for a different buyer can further elevate profit potential. Dealers also have access to full vehicle history reports so they can get a better read on conditions to help make the right sale.
Today’s automotive industry offers healthy profit opportunity for franchise dealers. An improving economy and still-healthy used-car price retention are helping to position dealers favorably. And despite the current feel-good landscape, off-lease returns and additional supply challenges on the horizon offer challenges that may erode profit margins. With the right technology tools, franchise dealers can continue to thrive by thinking smarter, faster and more efficiently.