Firsthand accounts on secondhand sales

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This story originally appeared in the Dealernews August 2010 issue.

If you read this month’s cover story, you know that independent retailer Road, Track & Trail bases its entire business on selling used motorcycles. Many franchised stores also derive a big portion of their profits from pre-owned sales — especially as the availability of new units dwindle. The struggles of these dealers become complex as they balance their showrooms and accept trade-ins. On the flip side, they often have the advantage of OEM financing.

To broaden our frontline look at the secondhand market, we spoke with a couple of franchised dealerships moving lots of used metal. We asked them about their markets and operations. Log on to www.dealernews.com/berts for a similar profile on legendary Bert’s Mega Mall in Covina, Calif.

Grand Prix Motorsports

Littleton, Colo.

Store size: 40,000 sq. ft.

Major brands: Kawasaki, Polaris, Suzuki, Victory, Yamaha

“The used-bike market is so strong right now,” says owner William Comegys. “It’s nice to see the retail prices going up.”

Values began rising late last year, he says. By unit volume, pre-owned vehicles were 37 percent of the store’s sales in June. Historically, this percentage has been closer to 20 percent.

Selling the pre-owned units is easy. “I think the market is so strong that you don’t have to do anything,” Comegys says. “All you have to do is just have them for people to get on. That’s the way used bikes are right now.” Even so, employees update the inventory on the store’s website every Monday. “I drive that into them, to make sure that’s done,” Comegys says. “That way customers can come back and look at what we’ve got new this week. It’s really important.”

Comegys doesn’t bother with Craigslist. He tried CycleTrader.com for 12 months about two years ago. “I just found it way too expensive for the way we do stuff,” he says. Similarly, he uses eBay Motors but isn’t a proponent. “You still have to sell to somebody who wants to come into the store,” he says. “I’m not into shipping bikes out.” But Grand Prix does deliver within a certain distance and is happy to accommodate buyer-arranged shipping. Comegys is bullish on his wholesale market of choice: National Powersport Auctions’ Dallas facility. “The prices are good right now,” he claims. “I don’t care what people are saying. I’ve done auctions for 10 years, and right now you can actually pick up bikes at about book wholesale.” Until recently, he notes, bikes had sold for book retail.

For transportation from the auction, Comegys benefits from knowing a trucker whose route is between Denver and Dallas. Freight for his last shipment of 29 bikes averaged out to about $120 per bike.

Every couple of months, Grand Prix obtains one or two bikes from auto dealers. A nearby Harley-Davidson dealership sends customers with non-Harley trade-ins to the store.

All units are entered into Grand Prix’s in-house pre-certified program, which includes a 45-day warranty. The dealership charges $269 for a thorough safety inspection and reconditioning. The dealership also has its own pre-paid maintenance plan providing a 30 percent discount on service costs. Depending on the size of the bike, the plans range from $1,299 to $2,000. Customers can also buy an in-house extended warranty, entitling them to the program’s “gold card.”

Salespeople use all these things to emphasize why it’s better to buy from Grand Prix than a private party.

When reconditioning units, Grand Prix only removes aftermarket accessories that might devalue the unit, such as a weird seat. EBay is used to dispose of take-offs.

Unlike wholesale prices, Comegys says, retail prices are higher. “There was a time not many years ago that you almost had to go by book,” he says. “But we’re back to where we can now ask on some of our bikes, if it’s a clean used with low miles, $500 to $700 over book.” The store’s average margin has been about 22 percent.

When appraising trade-ins, Grand Prix usually doesn’t account for aftermarket accessories. “We might a little bit if the guy has the bike totally outfitted,” says Comegys, who claims used-bike shoppers usually disregard accessories when making their own appraisals.

When negotiating on values, either for the trade-in or the vehicle being bought, Grand Prix uses gift cards to offset costs. So, for example, if a customer wants $400 more for a trade-in, the store may offer a $400 gift card instead.

Grand Prix sells consignments for a 20 percent commission, but will often go down to 15 percent for people who are also buying a unit.

The store compensates its salespeople by paying them 20 percent, excluding the 6 percent “pack” built into prices to cover the store’s expenses. The sales manager is paid a percentage determined by the profit per unit sold.

McGrath Powersports

Cedar Rapids, Iowa

Store size: 27,500 sq. ft.

Major brands: Honda, Kawasaki, Yamaha

Through May, used-unit sales at McGrath Powersports were up 5 percent compared to the same period last year, putting them at their highest level ever.

McGrath, a three-year-old retailer with a strong ATV business, sells about two new units for every used one. But like many dealer with sizeable off-road sales, the disparity narrows when ATV sales are factored out. Co-owner Mike McGrath says the ratio for two-wheelers 50cc and above is closer to 1-to-1. “It’s partly us, to be honest,” he says. “We don’t trade for as many good used quads as we do used bikes, so we don’t have them. And we’ve not really done a good job trying to buy them at auction.”

And then there’s the floor space consideration. “We’ve found it’s really difficult to stack used ATVs,” he says.

Even though shooting videos of used inventory seems to be all the rage (according to articles he’s read), McGrath hasn’t ventured beyond photos on his website. “The biggest thing is we just have them,” he says of used units. “We see a ton of people in the store. They can come here, and we work hard to make sure we show a nice inventory of bikes in stock.” McGrath buys from all National Powersport Auctions locations except San Diego. (Employees also consult NPA’s Value Guide when appraising vehicles with which they’re not familiar.)

The store uses eBay only to sell oddballs, and has never used Cycle Trader. “I’m not doing much on the Web,” Comegys admits.

All units receive a safety inspection, but only select ones are also entered into an in-house certified pre-owned program. McGrath charges $269 for the program’s more rigorous inspection and reconditioning. A short-term warranty comes standard, and the dealership sells extended warranties underwritten by RpmOne.

Nearly all McGrath’s used-bike financing is done through local lenders, not the OEM programs. “We can get a better rate, they’re easier to work with, and they’ll customize a package for somebody,” McGrath says. “We’ve got really good, aggressive credit unions in our area. They’re good partners.” Nearly 60 percent of customers use financing handled by the store.

McGrath says credit approvals have grown recently. He says that for his store anyway, tight credit was the main cause of last year’s stagnation. “In our area, people generally are pretty conservative. If they receive a high rate or are turned down once, they tend not to even put their toe in the water.” Aftermarket accessories on used units make them special, McGrath says, calling eBaying take-offs a “hassle.” He’s willing to pay a premium for a decked-out bike with curb appeal. How much more he pays is limited by the fact that financing for the unit’s future owner will be based off book.

Margins are so much higher for used bikes, McGrath says, because dealers can set their own prices. No two used bikes are the same. The OEMs, on the other hand, set — and sometimes ridiculously lower — new-bike prices. On the other hand, selling used units without trade-ins can be less negotiable than new due to the absence of freight or setup fees.

McGrath Powersports sells used just as it does new. In a system devised by consultant Ed Lemco, front-line salespeople called product specialists help customers decide on a unit, then pass them off to managers for deal negotiation. “The product specialist and the customer are never in any kind of adversarial relationship,” says McGrath. Specialists are paid each time they perform certain activities, such as hosting a customer on a tour of the dealership. They’re also paid a flat amount for each vehicle delivered. “And there’s some bonuses for certain units and hitting certain volume levels,” McGrath says.

Related:

Pre-owned profits: The survey

A boutique approach to used bikes

Diving into pre-owned with NPA

Manheim continues to grow