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

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

“Dealers that are more aggressive in pre-owned take trades no matter what,” Woodruff said. Auctions can increase dealer confidence in taking trades because they offer a chance to move trade-ins that sit too long on the showroom floor, possibly because the model isn’t popular in their area. Instead of a low-buck sale locally, sending it to auction in an area where there’s more demand can help bring the best realistic price.

Auctions can help dealers smooth out seasonal fluctuations in business. Consumer buying for street bikes tends to peak in the spring and taper off through the year, which can leave dealers short of used vehicles at some times and overloaded at others. There are also less predictable external factors, like spikes in gas prices, that may catch dealers off guard suddenly increase demand.

Some dealers worry that foreign buyers will drive prices up when they troll for vehicles to send overseas. But Woodruff said exporters are a single-digit percentage of bidders. The real culprit may be successful domestic dealers who are willing to bid a bit more when they see new competitors at an auction. “Nine times out of 10 the person who is paying more than you think he should is the guy down the street who’s figured out how to make money…Sometimes what happens is that the person you think is an international buyer really isn’t,” he said. “Sometimes they are domestic buyers bidding higher to drive out new bidders who are competing. But they can’t sustain it and it’s a very small percentage.”

Financing used product isn’t as difficult as many dealers think. Some lenders that offer floorplan for new vehicles will extend the courtesy to dealers who finance their new, franchised bikes with that lender.

Local banks, credit unions and regional banks may also offer alternatives, especially when dealers are honest about loss ratios.

Still, dealers may talk themselves out of auctions with needless fears, Woodruff said. He sought to defuse what he calls “mind traps” dealers set for themselves:

  • Fear of selling at a loss: When that holds you back, most likely you’re already taking a loss. Anything that sits on the floor for more than 45 to 60 days is diverting capital from more popular units and potentially making your showroom look stale to regular customers.
  • Fear of losing a retail customer: “The capital that is tied up in that unit could be for your customers. There are more retail customers getting lost when that unit is sitting there.
  • Fear that you can’t afford it: Once the benefits are clear, you’ll realize you can’t afford not to aggressively pursue pre-owned opportunities.

Fear that staff will make a mistake: Training can take care of that. “Have specific guidelines,” Woodruff said. “If the vehicle isn’t sold in 45 to 60 days, discount it. After 60 or 90 days, get rid of it.”