Anorexic new-car margins, shrinking profitability and a surge in off-lease vehicles have luxury-brand dealers — and automakers — punching the gas on the used-car business.
It's a notable U-turn from the days when luxe dealerships had little time or interest in peddling used cars. But with mass-market and luxury-brand vehicles alike, new-car profits have dwindled in recent years because of heightened price competition and shifts by automakers to reduce gross vehicle margins in favor of profits tied to special bonus targets.
The changes mean luxury-brand retailers are embracing used vehicles because there's financial opportunity. The used-to-new vehicle sales ratio at the average luxury-brand dealership spiked from 0.68-to-1 in 2015 to 0.90-to-1 last year, according to data from the National Automobile Dealers Association.
BMW of San Antonio revved up its used-car business in late 2014 when Mark Smith, co-founder of newly formed Principle Auto Group, launched a certified pre-owned program. Under previous ownership, the dealership wholesaled most of its used cars. Within 90 days, BMW of San Antonio was selling 180 used cars a month, up from 40.
"It exploded our service department business, because we were now putting more cars that were certified on the ground," Smith told Automotive News. "Eighteen months later, all of a sudden you got a 15 or 20 percent bump in service [revenue] month in and month out."
In 2018, Principle sold nearly two used vehicles for every new vehicle it retailed.