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7 Ways to Overcome Margin Compression in Your Used Car Business | vAuto

We’ve been talking about the return of margin compression since the end of last year, when dealers began noting that their front-end gross profit average was dropping from record-high pandemic levels. And back in April we offered three tips to improve margins: buy the right used cars, buy wholesale vehicles online, and use the Variable Management method.

Even if you’ve employed all or most of those tactics, you’re probably still feeling the pinch — especially as the average used car sale price continues to fall. Margin compression works differently today than it did before the pandemic because the market now affects every vehicle (and every dealer) uniquely, but no vehicle type is immune to the crunch. In the first half of June, year-over-year seasonally adjusted used car sale prices were lower for all major market segments.

So, what else can you do to make more money in this margin-compressed market? Here are seven solutions to put into practice at your dealership:

  1. Stock the Right Number of Vehicles

You can’t sell cars you don’t have. But if you stock enough used car inventory to follow the rolling 30 rule — where you’re stocking no more than your rolling 30-day total of retail sales  — then there’s less risk cars will age and lose margin.

  1. Look to Fixed Ops for Revenue Opportunities
    Every time you sell a used car, make sure your customer knows the value of returning to your dealership for all their service needs. You’ll build customer loyalty while bringing in more revenue, since the profit margin on maintenance is so much higher than that on new and used vehicle sales.
  2. Improve Process Consistency Throughout Your Dealership

Variance in your processes causes inefficiencies that shrink your already-tight used car sales profit margins. Look for every opportunity to ensure consistency — especially among your appraisers. vAuto’s ProfitTime® GPS will help you monitor the appraisal process across your dealership to make sure your team is purchasing enough vehicles and at the right prices.

  1. Monitor Your Days to Sell
    The Days to Sell metric measures the number of days it usually takes for a dealer to sell vehicles in a certain investment category. To maximize your profit margins, the vehicles you’ve invested less in — those with lower profit potential — should sell faster than those with higher profit potential. In other words, keeping low-value vehicles on your lot too long saps your margin, so those vehicles should hit your frontline first. vAuto’s iRecon will help you move them through recon fast so you can maximize your used car sales profit margins.

  1. Refine Your Approach to Employee Training

Your employees might be costing you in terms of how they handle sales and how they manage their time. Their performance, of course, has a direct impact on your dealership’s financial outcome. Deeper, more frequent training sessions will help ensure that everyone uses the right practices when communicating with customers — which, in turn, will help you maximize your used car sales profit margins.

  1. Leverage Digital Retailing and Merchandising
    If you haven’t digitized at least some of your sales processes yet, now is the time. Doing so will help your dealership align with today’s consumers while improving your efficiency and increasing your profits. As we wrote last month, online merchandising is the key to capturing buyers. And if you’ve got the right tools — such as vAuto’s Intelligent Promotion and SnapLot 360 — then merchandising a vehicle online should only take 20 minutes at the most.
  2. Rely on Trusted Data
    If you’re still making decisions based on your gut, you’re probably losing money. Even the most experienced, savvy dealers see an increase in used car sales profit margins when they base their decisions on data science. And the numbers are clear: Turn-based inventory management sells more cars, but Variable Management makes more money.

You can’t do anything about the decline in used car sales prices or the conditions of the current margin-compressed market, but you can take steps to squeeze more money out of your used car inventory. Your team and your dealership will feel the impact in a real way.

To learn more about how vAuto’s tools can help you improve profits in today’s margin-compressed market, request a demo today.