Following trends in the new-and used-car markets is always interesting. Usually market fluctuations can be easily identified and related to external forces, such as a natural disaster or various economic uncertainties. In other instances, there are fluctuations in specific market segments that seem to defy logic. The bottom line is ‘there is still gold in them hills.’ If dealers keep an eye on vehicle trends, and use technology to monitor, acquire, price and market inventory, then they will likely see their profit margins increase.
To give dealers a better picture, Kelley Blue Book’s valuation experts and market analysts recently tracked 140,000 transactions during a four-month period from multiple, reliable and widely known sources. Each observation began with a VIN-specific pre-owned vehicle selling at auction, with each vehicle’s value being tracked from its online listing price to its actual retail sale price.1
Kelley Blue Book Automotive Insights “Tracking Vehicles from the Lanes to the Lot: Auction vs. Retail Transaction Study,” shows some interesting trends. For example, while gas prices continued to rise, demand for fuel-efficient vehicles did not increase as it had in the past. The relationship between high fuel prices and gas-sipping cars demonstrates that shoppers are immune to the past hysteria of widely volatile gas prices and are lulled into a “boy who cried wolf” mentality. Currently, consumers are not as quick to pull the trigger and make impulse buying decisions in reaction to what is perceived as a short-term situation. The only sure fire way for dealers to be on top of this anomaly is to constantly track availability, demand and pricing in their local area, rather than making gut decisions or reacting to past experiences.
However, dealers need to be aware of the other side of the story: Even though margins are being squeezed and used-car values are down across the board, the compact, fuel-efficient segment still represent a viable profit center. So, the question is: What vehicles should dealers stock to get the greatest return on their investment?
Along with tracking the compact segment, some notable trends exist in the pre-owned luxury segment. Kelley Blue Book’s team of analysts found that even though gas prices haven’t affected other segments, including trucks, they have affected the pre-owned luxury segment, causing these models to drop in value.2 Right now, consumers shopping for 2009 model-year luxury cars can find vehicles at 57 percent of their original MSRP, which is far below the industry average retention of 70 percent for three-year-old models.3
The bottom line of Kelley Blue Book’s recent observations is that while margins are being squeezed in most segments, the pre-owned compact segment is selling for less at auction than used luxury cars, which holds relative to new compacts selling for less compared to new luxury cars.
With that said, dealers should consider investing in used compacts because there is a slightly higher profit margin than used luxury cars. With this insight into the used-car market, dealers have the opportunity to increase profits by stocking and selling lower retail, more affordable compact cars rather than pre-owned luxury vehicles at a higher retail price. The gold for dealers is found in monitoring market trends to prepare for investments in the best vehicles at auction.
1 Kelley Blue Book Automotive Insights ‘Tracking Vehicles from the Lanes to the Lot: Auction vs. Retail Transaction Study,’ January 2012 – August 2012
2 Kelley Blue Book Automotive Insights ‘Tracking Vehicles from the Lanes to the Lot: Auction vs. Retail Transaction Study,’ January 2012 – August 2012
3 Kelley Blue Book Automotive Insights ‘Tracking Vehicles from the Lanes to the Lot: Auction vs. Retail Transaction Study,’ January 2012 – August 2012