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Shake up your used car performance.

Updated: Dec 4, 2023

One of the enduring memories of working in the car industry in the UK was the focus on used car performance, especially in franchised dealers. I recall that our company target when working for Pendragon PLC in the UK was that we aimed to sell two used cars to every new car. But that was 20 years ago.

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Picture Credit: Photo by Markus Spiske on Unsplash

During a recent dealer visit I looked at their used vehicle performance and wondered whether that old ratio was at all meaningful in New Zealand and whether it could be attainable for a typical local dealer.


A quick look at Pendragon’s 2023 HY report and sure enough, these ratios are broadly still in evidence. In the first six months of 2023 they sold 49,650 new cars and 28,646. That’s a ratio of 1: 1.7 (at a gross margin of 9.6% and an after-sales gross margin of 51.5%.). Pendragon grew their used car performance by 7.2% (volume) compared with a market increase of 4.1%. Pendragon is a big dealer group and it was run with lots of structure and lots of data.

For many New Zealand dealers that ratio is long way away. It shouldn’t be.


If we accept the market is different (it is) should we accept that as a franchised dealer you can’t get closer to these ratios? We believe that the answer is no; you should be able to get closer to these ratios. You may decide that 1:1.7 is a step too far, but what about 1: 1.5 for example or 1:1.3. Setting the goal is the first step to achieving greater volume. After all, if you decide you cannot improve your ratio, you are also tacitly accepting that your current performance is enough. Yet, we would also accept that many dealers would be happy to lift their used car performance.


Challenge perceptions.

Perception: Customers will always buy the cheapest car: Data from TradeMe, shows that 93% of customers buying vehicles from a franchised dealer do not pick the cheapest vehicle.


Perception: Customers wont travel far for a used car: 65% of used cars are bought from outside the area that a customer lives in (TradeMe again).


Perception: Margins are lower on used cars: Partly true; yes in GPU, but not in GP% (because the selling price is typically lower).


Then there is the downstream revenue and stock turn to consider. For non-franchised dealers, it is unusual to see a dealer with its own workshop, unless perhaps their used car business has grown from a dealer being a service dealer in the first place.


Which in turn means that for most used car dealers, downstream revenue is not a focus of their business. F&I income will be, but there is no future revenue to be gained from a customer after they have left the yard, unless they become a repeat car buying customer.


Conversely a diligent franchised dealer has the choice of either selling used cars that they will service or a used car that they will likely never service. To put it another way, if you are a MG dealer, would you be better in the long term selling a used MG or a used Mazda?


This point is one of the critical points to used car selection. As a dealer you have a choice of spending one dollar on a product that will help you earn future revenue, or one dollar on a product and a customer that you may never see again. Your used Mazda is much more likely to never come to your MG service department again, and that also means that retaining that customer for the repeat purchase has become that much harder.


To take this example one step further, if you knew your service GP was 50%, how much more should you be willing to pay for that used MG versus that used Mazda?


Next consider enquiry. If you are a franchised MG dealer, what used stock are you likely to get the most enquiry for? Late model MGs or late model Mazda?


The role of Trust.

TradeMe also says that trust is the number one consideration when buying a car from a franchised dealer (and this is the case for a new and a used car). This is an important factor that can be re-affirmed or undermined by vehicle preparation standards, product knowledge, warranty and the way vehicles are displayed and sold. Trust is a difficult attribute to measure, but as a minimum, understanding vehicle specifications (particularly important for non-franchise vehicles where your sales team maybe unfamiliar with specifications) and having a good quality listing with a decent included warranty would be important starting points.


The data doesn’t lie. Stock turn is a super-power.

It’s time to take a long hard look at and stock turn. Look at the last 3 months of sold vehicles. How long had they been in stock. What was the shortest length of time and what was the longest?


Margin is meaningless, if your capital has been tied up too long. Better to focus on volume than margin, as long as stock turn improves. It will cost you close to 1% a month to hold stock, so you may as well make your money work harder, and invest in stock that sells more quickly.


Businesses like Pendragon will likely have a tough set of internal KPIs, something like this. Days in stock to being yard ready; 3 days. Maximum days on yard, 60 (with reviews at 30, 45 and 50 days). They will have GP targets, and they will have recon targets. Expect a focus on quality of appraisals and reconditioning spend versus anticipated reconditioning spend, as well as a tight focus on average days in stock.


Early in my career a sales manager told me there was only good and bad as a tyre condition report on an appraisal. Good meant the dealership wouldn’t have to replace it and that bad meant in needed replacement. There was no 'okay', and WOF (or MOT in the UK) standards didn’t have a bearing, as WOF standards are not acceptable as a retail standard. Make your trade evaluation process separate from your trade valuation process. They are two different steps. One can be done by the sales consultant, and one must be done by the used car buyer or sales manager.


Stock Profile.

Develop a clear stock profile after having a look at the stock turn data. For example, we will buy used stock at less than 120,000 kms and under 5 years old, if it has a service history and it is a brand we represent. We will pay a premium for the brands we represent. We will stock 3-5 year old vehicles for brands we don’t represent (under 100,000 kms). We will trade out everything else. We will actively buy used branded stock from other dealers in our area and out of town. We will buy vans 3-5 years old under 150,000 kms. A maximum of 10% of our vehicles will be outside our core stock profile.


What your ideal stock profile should be undoubtedly depends on your core customers, it will be different for most dealers in most areas. However, there is also likely a common thread. Leave the older used vehicles to the nonfranchise dealers, leave the poorly maintained vehicles to someone else, and focus on the brands you sell, at a lower margin but faster stock turn.


None of these points individually will transform your sales performance. However, a clearer volume focus based on an emboldened new to used ratio will.


Setting the sales ratio is the first step to creating a plan; implementing the plan might be the best thing you do in November 2023.


Good luck.





www.boostauto.co.nz/read-blog


Boost Auto is an automotive consultancy working in seven main areas.

• Sales Training

• Sales and Marketing effectiveness for brands and dealers

• Market Insights & Trends

• Business planning and facilitation

• Operational Effectiveness

• Get Ready Automations

• Go To Market strategies for emerging brands



You can contact us at hello@boostauto.co.nz


Picture Credit:

Photo by Markus Spiske on Unsplash


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