1. Reconsider cars
Although the market for new cars under $20,000 collapsed last year, that doesn’t mean buyers don’t want or need cars. Small and midsize cars accounted for 34% of the used sales through franchise dealers, according to J.D. Power. Whether it’s environmental awareness or a desire for a more affordable payment, younger and first-time buyers specifically are looking for used cars instead of trucks and SUVs, says Jonathan Banks, vice president of vehicle valuations and analytics for J.D. Power. Among Generation Z buyers (those 22 years old and younger), 63% of purchases last year were used vehicles — and 25% of the vehicles Gen Z purchased were compact cars. “If I were a dealer, I’d try to capitalize on the affordability play,” Banks says. “Get these young buyers into the right car now, and think about their lifetime customer value to the dealership.”
2. Sell to your strengths
If a dealer is frustrated by the profit margins on new cars and wants to concentrate on used vehicles, “we tell them to have a plan — to think strategically about what they want to buy,” says Adam Tobias, co-founder and COO of DealerCue, a dealership consulting company. His suggestion: Go all in on your core product. “Especially in large metro areas with lots of competition, there is always a dealer that owns their core product, that’s the brand’s biggest used dealer in the market,” Tobias says. “Those are the dealers that are going to win.”
3. Take a second look at certified pre-owned
“If fewer people are buying new cars, certified pre-owned is the next best option for them — late-model cars with great warranties from the manufacturers,” says Jasen Rice, founder and owner of LotPop, a dealership consulting company. “And if they’re a local customer buying CPO, it should almost guarantee an ongoing customer relationship with the dealership. It’s the best way to maximize used-car sales and total dealership profits.” The manufacturer warranty will bring the customer back to the dealership for service, Rice says, and certified pre-owned vehicles often bring in the late-model trade-ins that dealers can’t get at auction. In addition, finance companies such as Ally offer programs specifically geared to certified vehicles.
4. Explore all options for used inventory
“Sourcing used vehicles is one of the biggest challenges for dealers as they grow their used-vehicle business,” says Matt Arnold, an Ally senior regional vice president. He points out that the number of vehicles coming off lease is expected to peak this year and remain strong — providing one source of pre-owned vehicles. “Ultimately a dealer has to be savvy and obtain inventory from many diverse sources,” Arnold says. “Trade-ins, physical auctions, digital auctions (including Ally’s SmartAuction) and direct from consumers all play a very important role in having the right inventory to maximize sales and profits.”