Your Used Car Business - 2023 Edition

Profit & Efficiency

With the 2022 reporting season now well underway, it’s apparent that only the most proactive profit and efficiency focused groups can match the 2021 results which had a built-in non-recurring stock gain of £500 on every used car sold. Many of the RWA Automotive customers have achieved this despite a reversion to regular depreciation, this has been as a result of continuous transformation of their used car business in terms of how used cars are sourced, priced and sold to keep driving momentum on volumes and GPU’s.

Sourcing

With the low 2020 new car sales restricting supply, dealers have had to get more systematic about sourcing quality used cars. The most important new KPI here is percentage of trade-ins as this continues to be the best source of stock. The valuations of trade-ins and indeed cars from all sources has become more sophisticated and ideally should be calculated from the retail valuation less margin +/- the anticipated market movement between the purchase date and predicted date of sale. Vehicle prep too is a hot topic with several KPI’s being tracked to ensure that time in preparation is minimised. Dealers are investing in business intelligence technology that does all the heavy lifting in terms of informing what to buy, where to buy and how much to pay.

Pricing

Over the last 3 years, the adoption of sophisticated pricing policies on top of Autotrader valuations has become the norm with almost all dealer groups. There is a significant move towards centralised pricing and a little more to automated pricing.

• Local Sales teams’ pricing to a sophisticated policy is still the default position although oversight is required to ensure that there is consistent compliance.
• Centralised pricing has become much more popular, with an experienced manager setting the price in Head Office based on their policies with some overrides allowed to sales managers. This works really well and tends to be the option that drives the biggest payback in terms of staff efficiency and financial return.
• Automated pricing is still relatively unusual, it tends to be applied to subsets of stock such as certain aged or poorly rated vehicles etc.

Pricing policies continue to be based on ever more sophisticated Autotrader metrics. Typically, these are slanted towards required GPU’s, volumes, adjusted days to sell and they vary at least according to the brand / branch / fuel type. They are normally updated at least quarterly and sometimes monthly based on anticipated levels of supply for the following month. Those dealers that are tracking how the retail ratings and the market depreciation are moving, these are the ones delivering the most profit.

Selling

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.

Many groups have maintained the 2021 level of profit efficiency in 2022 – it can be seen in some of the financial reporting to the market. Despite the pressures of wage and finance costs hitting the bottom line, there are still many opportunities to grow the gross margin line by adopting the best practices in what is becoming a very innovative industry in the UK, this writer has observed that is not so in other countries, including Canada and the USA.

John Hogan is the CEO and Chief Data Scientist at Real World Analytics (RWA). RWA helps dealer groups become more efficient with actionable drillable dashboards and reports Visit realworldanalytics.com/automotive/our-solutions for all our solutions, or check out our customer stories. If you want to find out how we can help you drive your dealer business forward, contact us here or email auto@realworldanalytics.com

This article was previously published in Auto Retail Bulletin.