How UK auto retailers beat the used cars market and maximise profits

Background

In 2021, many dealers were pleased to announce record results on the back of gains in their used car businesses. Our analysis showed that there was an average stock gain (negative depreciation) of £600 on an average car whilst it was on the forecourt for roughly 45-60 days. In 2022, there were no stock gains as the market has been flat at best, in fact we are now back to normal depreciation of £100-£500 typically per car in stock, depending on the time of year. We were concerned earlier in the year that 2021 would have represented a once off level of profitability and wouldn’t be repeated. Our fears were mostly unfounded amongst our customers as they were able to find new levels of performance to keep their GPU’s at a consistently high level. Here’s how they did it:

Better buying

One of the areas we were pleased to help customers on was identifying which cars to focus on for replenishment based on units sold, retail ratings, profitability, and days to sell. Although buying cars has not been easy for dealers, a data driven focus has resulted in improved performance. Many dealer groups developed models for purchase and trade-in prices that anticipated market movements which factored in expected depreciation.

Faster stockturn

It was very good to see many more vehicles being priced correctly from day 1 based on the market. The Autotrader Retail Ratings are now used by many dealers to set a pricing policy for their cars based on each vehicle’s desirability. This allows the dealer to sell above the market for highly desirable cars and at the same time, pricing below the market on day 1 for the less desirable cars with a target of 45 days to sell. Selling at 45-60 days is imperative when you have a depreciating asset on the forecourt. In 2022, we have seen a concerted effort to get consistent days to sell across all cars on the forecourt, and this has driven stock turn in Q1-Q3 this year, but we are seeing something of a slowdown in Q4 so far.

Improvements in F&I revenue

Salespeople stepped up with a higher F&I profit to add to the vehicle GPU. We’ve seen more league tables being used to create internal competition & benchmark performance. Visualising the F&I opportunities in the showroom system before invoicing has also made the opportunities much more actionable.

Finally, it is worth saying that we have seen a lower level of sophistication in North American markets in terms of how they price used cars. So, no matter what challenges lie ahead for the industry, it is clear that the leading UK auto retailers are stepping up and meeting the challenge with a very modern data-driven and focused approach to their all-important used car businesses.

John Hogan is CEO & Chief Data Scientist at RWA Automotive who helps dealer groups become more efficient with actionable drillable dashboards & reports. Visit realworldanalytics.com/automotive for more details about RWA