High Supply, Higher Demands
The upcoming surge of off-lease vehicles set to hit the market (3.6 million as estimated by Manheim), is a great source of excitement for used car dealers. But it can also be a cause for concern. Will such a supply flood push down prices and compress margins? Will competition within the market make it difficult to maintain strong profits per unit? These are all valid questions that, as selling season approaches, dealers need to be preparing for.
In order to combat margin compression from an overloaded used market, it’s important to first know what vehicles you can move most quickly. Go back in your books and see what vehicles sat on your lot for the least amount of time. Try to identify any trends to find out what types of vehicles you should seek out at auction. Moving more vehicles each month will help combat outside forces applying pressure on your margins and help you stay price competitive within your market.
The protection you offer on your vehicles can help you safeguard your profits as well. Offering vehicle service contract protection provides profit opportunities on the back end of deals that can make up for any margin compression you feel on the front end. This allows you to price competitively without putting profits at risk. A bonus benefit is the confidence you’re giving customers to drive off your lot worry-free. But a service contract only provides these benefits if it’s presented to every customer, every time.
Perhaps the most straightforward way to put all these pieces into motion is to offer a Certified Pre-Owned Program. Statistics published in Auto Remarketing have shown that Certified Pre-Owned vehicles can demand, on average, $700 more per unit. Similar statistics also report that Certified Pre-Owned cars are sold an average of 12 days more quickly. To recap, simply by offering a Certified Pre-Owned Program, you can meet all the demands of a higher used car supply: move vehicles more quickly; protect your margins; and earn extra profit per unit through service contract protection.
A massive supply surge doesn’t need to be feared if you have the right plans in place. By acquiring inventory you can move quickly and providing service contract protection that preserves your margins, you can bask in this rare opportunity to move mass quantities of high-quality used inventory.