The used car market is booming as demand—and prices—continue to climb. Independent dealers, already faced with navigating the economic revival following the downturns of 2020, are now stepping in to fill in the gap that the global chip shortage has created. With automakers potentially forced to halt production into the fall and economic indicators pointing to a healthy recovery, the signs seem to say that this lucrative market will only continue.
But as we’ve all learned by now, no one knows what the future holds. Even during periods of recovery, it’s crucial to focus on improving PVR and overall performance with an eye for what may be ahead. Here are two things to consider to help you make the most out of this surge in demand in a way that can take your dealership beyond just meeting end-of-month goals.
1) Short-Term Profit versus Long-term Relationships
Profit margins on certain products may be higher, but it’s crucial to think beyond short-term gains. What is the customer relationship that you could be building with each sale worth? For buyers who have shifted to the used market for the first time due to inventory shortages, does it make sense to have a single strategy focused on increasing PVR for that sale only when you could be focused on gaining a new long-term customer?
To nurture a longer, more valuable relationship, a thorough needs analysis is crucial. Introducing buyers to the right set of products that gives them peace of mind can yield greater long-term profitability for your store. When a customer leaves your dealership feeling like they just paid for something they won’t use, they may never return. Even if a customer doesn’t feel that way immediately, for every day that goes by with that product unused (or unusable), regret rises.
When you’ve matched the right product to the right customer, you’ve strengthened that customer relationship and set up the original products as the baseline for their next purchase. A higher quality product may mean a lower PVR upfront but can create long-term profit down the road.
2) Introducing F&I Early
A critical step in improving PVR is successfully communicating the value of F&I products to consumers, and that requires adopting a strategy that aligns with how customers make purchasing decisions. Dealers can build better relationships with customers by becoming their allies, working from the start of their journey to help buyers understand the importance of the protection products offered at the dealership.
Introducing F&I earlier in the process is a critical part of capturing more contract sales. Customer satisfaction starts to drop after the first ninety minutes of a deal, so waiting to present products until the final stages can mean that customers are less receptive and feel pressure to make yet another decision.
During the initial sales process, advocate for the value of vehicle protection products at every opportunity—from your website to the walk-around and test drive. Some ways to work F&I into the ongoing conversation include:
- Sharing the cost to repair expensive vehicle parts such as the engine and transmission.
- Pointing out often-overlooked costs when estimating a vehicle repair, such as labor and diagnostics.
- Illustrating the need to be financially prepared for an unexpected repair.
When your focus is solely on PVR, it can be tempting to raise prices to see greater immediate profitability. But as prices rise, product penetration decreases, translating into fewer long-term relationships and lower future profits. Focusing on the right set of products, aligning products with customer needs, and educating consumers on the benefits of F&I products can yield greater long-term profitability for your store.