When we look at pre-owned department gross (front end only) we need to remember that F&I income is a separate entity. The F&I department is responsible for F&I income. Pre-owned managers are primarily responsible for the front end gross. This is not to say F&I is not important to pre-owned managers, it is, but the primary function of a pre-owned manager is to maintain a reasonable and fair return on investment.
What I am hearing from dealer calls and scores of group situations that I am in, such as a training class when gross income comes up, is that front end seems to be dropping across the board. Now, this didn’t happen over the last eight to ten months like all of a sudden everybody being hit by a flu bug. So, what is the reason for it?
First, let’s take away the myth that Cash for Clunkers hurt the availability of good pre-owned cars. The cars that you acquired for $4,500 under a Cash for Clunkers deal are not vehicles that you would have retailed in the first place. The people that were hurt by that Cash for Clunkers were the independents.
Also, we all know that the values of pre-owned vehicles are at a premium. Pre-owned vehicles are sold by new car dealers, independent dealers and private individuals. Currently, private individuals are by far doing the best job of getting the quickest turn rate at the highest front end gross.
Here is my assessment of why new car dealer front end gross has dropped. In reviewing the stores who are complaining about their grosses dropping, I ask them how they start pricing their inventory. Every conversation centers around competitive Internet pricing based on sell price statistics that are being obtained in their market. I want you to stop and think about that without me having to spell it out for you. Private individuals certainly do not use that method to set their vehicle sell prices, and their gross in the same market far exceeds yours! Gross is a state of mind of the salesperson presenting a vehicle for sale. That is the art that we have lost by getting entangled in the World Wide Web.
‘Til next month, just my opinion, but chew on that pork chop for a while.