Many dealers have started to see a return of margin compression in their used vehicle operations. Retail prices have been declining — with the exception of a temporary uptick beginning in mid-February — leaving dealers with a noticeable reduction in average front-end gross profit. Today’s margin compression isn’t nearly as extreme as what we saw prior to the COVID-19 pandemic, but it creates an opportunity for you to hone your operations to prevent unnecessary margin loss. Here are three tips to help you improve dealership margins:
- Buy the Right Cars
A critical key to improving your car dealership profit margin is to be sure you’re buying the best vehicles for your market. You really do need to check the analytics. If a certain car is turning in your market, you can probably even pay more for it than you normally would and still make money. But if it’s not a fast turner, and you know you need it, you’ll know you need to be especially careful about how much you pay and how you price it to move — if you buy it at all.
Solutions like Stockwave from vAuto make it easy to find the specific vehicles your customers want. Bruce Harrington, used car director at Paso Robles Chevrolet, refers to Stockwave as “the used car factory” because it can point him to nearly anything he wants, down to certain trim requirements, in seconds. And when he has customers waiting to buy these vehicles, he knows he has a good chance of protecting his ideal dealership profit margins.
- Buy Wholesale Vehicles Online
If you’re still driving to auctions so you can see vehicles in person before you purchase them, now is the time to finally make the switch to online bidding and buying. Why spend days on the road when you can build a buy list in an hour or two? As Harrington at Paso Robles Chevrolet knows, you’ll gain time back in your day that you can use to help expand your dealership profit margins in new ways. You can:
- Watch the lanes for vehicles with high profit potential. Sometimes cars don’t show up on the run list until they’re moving through the auction lane. If you know the vehicles you need from your buy list, and you’re able to monitor multiple auctions and lanes at the same time, you’ll be able to keep an eye out for any unexpected gems that you know you can sell for a decent profit.
- Empower your sales team to close more profitable deals. If you spend less time driving to auctions and acquiring cars in person, you can spend more time at the dealership, educating your team about the vehicles they’re trying to sell. And when your team understands the real value of each car, they can explain it to potential buyers — and close more deals with greater confidence and profit margin.
- Keep your recon process moving efficiently. By spending more time at the dealership, you can address reconditioning issues as they arise. Your availability will allow cars to keep moving through the recon process and to the front line. This way, you increase the chance of realizing each vehicle’s full profit potential.
- Use the Variable Management Method
Lastly, the variable method of inventory management continues to prove beneficial to car dealership profit margins — driving better outcomes than the Velocity Method of Management®. That’s because Variable Management helps you see the profit potential in each car on your lot, so you don’t sell cars for less money just for the sake of sales volume.
vAuto’s ProfitTime® GPS, the industry’s only Variable Management solution, is built specifically to optimize your ROI on every vehicle, at every moment. It’s the best tool for dealership profit margins.
With used car prices expected to fall more in 2023, it’s vital for you to protect your car dealership profit margin on every deal. To learn more about how vAuto’s software solutions can help you improve dealership margins, request a demo today