Pre-owned inventory: Reach for a shorter new-used ratio, says NPA

Publish Date: 
Feb 16, 2013
By Holly J. Wagner

DEALER EXPO, Indianapolis, Ind. -- Most dealers recognize the profit potential of pre-owned vehicles, but especially in tight economic times, trade-ins may not be enough to fill customer demand.

“What if I said you have a bank account right under your nose that could earn you 60 percent?” NPA COO Jim Woodruff asked the audience at the Power of Pre-Owned seminar Saturday, noting that an investment of $10,000 into a used vehicle can yield 15 percent profit, and the volume of used sales annually is four times that for new vehicles. Depending on the ratio of new-to-used sales you have now, increasing used vehicle sales can make a big difference. “The most successful dealers sell a ratio of 1:1.”

Used vehicles offer a lower-priced point of entry for new riders and a greater chance of a cash sale, and lower prices may make them easier to finance, especially if the buyer has less-than-perfect credit.

Beyond trade-ins, options to keep pre-owned inventory fresh and available include street buying, bank repossessions, working with other dealers independently or through programs like Harley-Davidson’s dealer exchange, and auctions.

Auctions offer a chance for any dealer, regardless of franchise or local conditions, to get in on a high-margin supplement to new inventory sales, and the segment offers a lot of potential for growing a business: Dealers handle just 25 percent of used powersports vehicle sales today; the rest are private party sales. And used vehicles aren’t subject to franchise rules or laws, giving dealers greater flexibility.

For those who find the auction process intimidating, Woodruff has some good news: it’s not as hard as you think, and the potential rewards are worth it. “Pre-owned is a 16 times greater opportunity [for revenue growth] than any other space out there,” he said. “How can we all get that through the doors? The easiest way is to just go buy it.”

Buying off the street can be labor intensive. The dealer has to have staff that is knowledgeable assigned to the task —people who know what to pay and how much a vehicle can be expected to bring.

To address the question of how much to pay, tools like NADAguides and NPA’s value guide take some of the uncertainty out of the valuation process, and NPA’s guide is a real-time yardstick for what’s available.

Dealers need not worry about getting stuck, he said. Even a vehicle that may not be worth much investment can be worth taking in trade to make the new vehicle sale, as long as there’s an outlet to move the trade. (Continued)