3 Best Practices for Pre-Owned Car Dealerships

Dealers are focused, now more than ever, on maximizing the profitability of their used car operations. Thanks to disruptions from the ongoing pandemic, many dealers have seen their business model suddenly shift to being predominantly pre-owned, to the point where IHS Markit research found that in May 2020, there were three used vehicles sold for every new vehicle sold. 

Pre-owned car sales aren’t just trending; in fact, they’ve stayed consistently profitable. According to a J.D. Power industry report, used vehicle retail prices remained 7% higher than pre-virus levels, for the week ending on August 23, 2022.

In this blog post, we share pre-owned dealership best practices to help dealers maximize their profitability, including:

• Building a profitable used car inventory mix by targeting drivers of in-demand trade-ins
• Building and engaging a profitable pre-owned customer audience 
• Simplifying your car sales process to reduce overhead costs and improve dealership efficiency

Acquire the Right Vehicles 

The biggest driver of profitability for pre-owned dealerships is an effective used car inventory mix. With little room to move on the pricing scale, dealers know their pre-owned profitability relies largely on their ability to acquire, recondition, market, and sell the cars on their lot as quickly and efficiently as possible. You may not have much control over what a car is selling for in the market, but you do have the ability to market and sell it in a way that maximizes ROI and profitability for marketing car dealers.

One reason pre-owned dealerships buy at auctions to fill out their used car inventory is it gives the dealer the ability to pick and choose the cars they need for the right inventory mix.This tactic is preferred as opposed to hoping the right trade-ins appear on the lot; That’s why our predictive marketing solutions are so effective for pre-owned dealerships. The same insights that power our personalized auto marketing also empower dealers to prioritize car sales prospects who have in-demand trade-ins to assist in the acquisition process. 

Predictive analytics allow dealers to combine this make-model-trim level of targeting with the profitability of trade-in and replacement sales.Both of these decrease dealerships’ reliance on auctions and increase the quality of their trade-ins.

Your dealership service department is another powerful tool for acquiring in-demand, high-quality trade-ins. Unlike wholesale acquisition, you know much more about the vehicle you’re purchasing and can make a more realistic prediction about reconditioning costs. Every car you acquire from your service drive is one less car you’re buying at auction, which removes the associated risks. 

The service drive also provides the perfect opportunity to double down on acquisitions by selling the customer the replacement car, rather than buying a car at an auction where someone else has already made the trade-in sale.

Build a Profitable Pre-Owned Customer Audience 

The heart of a profitable pre-owned car sales process is matching the right car to the right customer at the lowest possible cost to the dealership. Since used conquest auto sales are typically heavily product driven, dealers need to analyze insights from their CMS, DMS and sales platforms to identify prospective leads. Ideally, these leads are predicted to be interested in vehicles readily available in their inventory. Engaging these prospective buyers before they enter the car sales process – and before they start to price shop – is critical to maximizing profitability. This requires dealers to literally predict which customers will be interested in pre-owned vehicles and the specific factors driving their purchase decisions. 

Comprehensive predictive analytics and sophisticated outreach programs are critical to this process. They simplify complicated buyer journeys and empower dealers to identify and engage pre-owned customers with relevant offers that factor in demographic information. Specific details include household composition, previous purchase history and a car dealership’s available inventory. 

Dealers using Mastermind’s data-driven predictive marketing campaigns gain up to 15 additional conquest sales per month. Not only is this approach effective, but it’s profitable, with our predictive marketing campaigns generating up to 15x ROI over the industry average.

Unite Fixed Ops & Variable Sales

Now is a great time to revisit how your car dealership’s sales and service departments interact. While dealers have traditionally viewed these departments in silos, the most profitable pre-owned sales processes span across departments. 

For example, a CPO sale from a service visit results in a reconditioning order from the trade-in, resets the warranty clock to ensure future service from the CPO buyer, and creates a potential new service customer from the eventual trade-in buyer. Turning a service visit into a sale does not cost a pre-owned dealership’s service department a ticket; In fact, it opens even more opportunities.

That’s just one example of the degree to which service and sales are intertwined at pre-owned dealerships, despite being nominally different departments. While dealers tend to think in terms of new car sales, used car sales and fixed ops, the reality is they’re all truly part of the same dealership sales team. New car shoppers end up purchasing used, and people who think they’re in the market for a used car are upsold to new cars. Similarly, long-time customers come in for a service appointment and end up unexpectedly in the market for a trade-in.

An auto leader dealership best practice is to consistently manage all of your sales functions on one dealership sales platform.This approach is recommended over having separate ones for new and used vehicles, having both talk to the DMS and CMS separately. Mastermind’s pre-owned sales functionality allows dealers to accomplish this, streamlining workflow while helping pre-owned dealerships provide consistent dealership customer experiences across all touchpoints.

Interested in seeing how you can apply best practices to your dealership’s pre-owned operations? Contact us for a free Mastermind demo.