Even as new-vehicle sales slow and margins tighten, dealers can turn to the used- vehicle department to find a "wheel of fortune" that can keep profits on the upswing across the dealership.
At least that's used-car guru Dale Pollak's take. For Pollak, a Cox Automotive executive vice president and founder of inventory management software provider vAuto, a successful used-vehicle operation begins "to change the way we think about making money in the dealership."
Not only are used vehicles an important profit center, but the used-vehicle department is often a catalyst that supports other parts of the dealership. Used-vehicle sales offer opportunities to build revenue and profits in the service department and the finance and insurance office, for example.
It's a winning formula that dealers are increasingly seeking to use.
"If you said, 'What's the most important part of the retail operation?' I'd tell you, 'It's the used-car sale,' " said David Hult, CEO of Asbury Automotive Group, the nation's seventh-largest new-vehicle retailer. "If you're a very strong dealer that does a good job with pre-owned, you can be more aggressive on new because you're taking in more trades. Your margins are higher on used. You're taking in more parts and service, and you have F&I. It moves all the needles in all those departments."
For instance, reconditioning trade-ins to get them retail ready helps boost the service shop business, Hult and other dealers say. And F&I managers can more easily sell service contracts and maintenance plans on vehicles that are out of warranty, so F&I profit per vehicle rises. Used vehicles also typically generate more gross profit per unit than new vehicles. Through the first eight months of 2018, average gross profit per used vehicle retailed at franchised new-vehicle dealerships was $2,377, compared with $1,949 per new vehicle, according to the National Automobile Dealers Association.