Finding New Opportunity in Pre-owned Vehicle Sales

July 2, 2020 John Kehm

It’s clear that used vehicle sales are going to make or break 2020 for many auto dealerships. Even before COVID-19 disruptions, auto industry sales trends reflected a growing opportunity for dealers in pre-owned vehicles. In a recent study, 64% of car buyers said they would consider pre-owned options while shopping for a vehicle. 

In late 2019, Kerrigan Advisors research found that dealers of all kinds were already approaching an average 1:1 new to used vehicle sales ratio; an increase of almost 10% since just 2018. For new car dealerships specifically, NADA reported a total of 14.9 pre-owned vehicles sold by new-vehicle dealerships in 2019, compared to 17.1 new light-duty vehicles. 

Now, considering new vehicle production disruptions, household financial shocks to car shoppers and a glut of pre-owned vehicles hitting the market, 2020 will likely see pre-owned vehicles handily outsell new cars. Dealers that embrace the reality of auto industry sales trends and adjust to take advantage of the pre-owned sales opportunities in this marketplace will be far ahead of competitors who revert to business as usual.

In this post, we suggest three ways your dealership can sell more used cars in 2020, including:

  • Identifying pre-owned buyers early in their car buying journey
  • Improving your profitability through smarter acquisition
  • Boosting net profit by improving cost-of-acquisition ROI

Identify & Engage Pre-Owned Prospects Early 

With fewer trips to the physical dealership comes less opportunities to engage would-be buyers early in their purchase journey. Even before the COVID-19 pandemic, the window of opportunity for dealers to engage potential buyers was narrowing. According to one study, from 2017 to 2019, the average time consumers spent shopping and researching for used vehicles fell from 15:07 to 14:12 – a decrease of almost an entire hour in just two years.

In today’s fiercely competitive market, dealers need to identify prospects early in their purchasing journey and earn their business by delivering an exceptional dealership customer experience from the start. 

This means understanding and addressing each prospect’s individual wants and needs. Knowing used conquest auto sales are heavily product driven, leverage your dealership’s DMS, CRM and dealership sales platform to identify prospects likely to be in the market for vehicles in your available inventory. 

With pre-owned buyers typically more nomadic, price sensitive and credit challenged, understanding the various factors influencing their purchasing decisions can be difficult. Comprehensive predictive analytics and sophisticated outreach programs are critical to simplifying these complicated buyer journeys, empowering dealers to match pre-owned customers with relevant offers and simplifying complex sales cycles with automated, data-driven marketing.

Keep Pre-Owned Car Inventory Working For You

NADA’s annual dealership survey found that of the 14.9 million pre-owned cars sold at new-car dealerships last year, 40% were acquired by trade-in on a new car purchase, 27% were from auctions and 23% were from trade-ins on used vehicle sales.

That mix will likely change dramatically in 2020 thanks to the year’s unique market forces, including shrinking new car inventories thanks to OEM production disruptions, defleeted vehicles clogging auction lots and an increase in used trade-ins. 

This presents challenges and opportunities for dealers looking to build a profitable used car inventory mix. Make sure your dealership’s used car buying isn’t just operating on a “business as usual” model, but is instead ready to identify opportunities in a glutted market for high-value acquisitions on one end while ensuring you have the capacity to take more trade-ins on used vehicle sales than in the past.

This is a great time to look at what pre-owned cars are in demand in your market. Once you know what’s hot and hard to find, use predictive marketing tools to identify owners of those vehicles in your marketplace and engage them with personalized messaging and actionable trade-in offers that factor the potential resale value of their current cars into the equation.

Increase Dealership Profit Through Efficiency

In 2019, the average new-car dealership in America made a $2,374 gross profit on every used car sale, but only $14 in net profit. Those figures are even worse for import dealers, which averaged a $50 net loss per used vehicle sale, and for luxury dealers, which posted $1,708 net losses on each pre-owned transaction despite comparable gross profits.

Improving those figures requires cutting the costs that go into the difference between gross and net profit, which largely means cost of acquisition. While NADA doesn’t track used vehicle marketing costs specifically, its dealer surveys did find that the average dealer in 2019 spent $640 in advertising per new vehicle sale. That was almost 32% of the gross per-sale profit and more than the $631 net loss dealers averaged on new car sales last year, highlighting what dealers have always known: Improving marketing ROI is critical to net profitability. 

With predictive marketing campaigns, dealers can convert qualified auto leads into buyers more efficiently by using the channels and messaging most likely to engage each individual prospect. 

This is why we’ve built pre-owned functionality into Market EyeQ, using strategic information from IHS Markit. Just as with new vehicle sales, dealers can use Market EyeQ’s Behavior Prediction DriversTM to identify the best used vehicle sales prospects, communicate with Mastermind’s predictive marketing campaigns and close more deals with actionable customer insights. The results speak for themselves, with dealers who market with Mastermind generating up to 15x ROI.
 

Looking for ways to identify the opportunities of 2020’s used car marketplace? Contact us for a free Market Eye Q demo and learn how to turn used cars into new profits this year and beyond.

Explore additional resources to reaccelerate your dealership’s COVID-19 recovery. 

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