Preowned for Fun and Profit

Dile M. Brown is the man behind Knoxville Harley-Davidson and two other dealerships. He is also a member of the Dealernews Editorial Advisory board and figures used units into his overall business plan. We talked to Brown about his used bike sales.

DEALERNEWS:Do you only deal with Harley-Davidson, or do you also sell other brands of pre-owned bikes?
DILE M. BROWN: We will take any brand or model of unit in on trade as long as there is a title issued in the customer's name.

What models are most people looking for?
BROWN: People shop for price first and then they shop the cruiser models of just about any brand. Of course, here Harley-Davidson is the most popular. After that, the lower-priced entry-level units — 600cc through Sportster. Then Touring if the price is right and the unit is equipped as desired.

How long are various models on the dealer floor before they're sold?
BROWN: Other than during the off-season, units are usually sold within 45 to 60 days. Lower-priced units sell faster [except those from the off-brands]. The clone H-D models are getting very difficult to sell, and their values are dropping like a rock. We are very careful with these units as to value because they are taking four to six months to move and then at a big discount price from original.

About how many used sales do you average a year?
BROWN: We sell on average about 150 used units a year from each of my three stores, or about 425 to 450 units a year.

How does your sales staff present used units to customers?
BROWN: They determine the customer's desires and offer something available. [Brown pays his sales staff on a per-unit basis, not on commission.] If a new unit is out of the customer's price/payment range, we'll offer used. If customer wants something used, we go over in detail what's in stock. Remember that used units are difficult to shop because of mileage, condition, accessories, etc.

How does the condition of the bike affect its trade-in value?
BROWN: We evaluate what a clean, good-condition unit will sell for in our market — that's called a Wild Hairy Ass Guess — and then figure our margin. After that, we discount the repairs necessary and that is close to the trade-in value. To figure the repairs necessary, we go over the unit with the customer and our service department so all sides can evaluate the necessary repairs and the cost.

Do heavily accessorized bikes have a higher trade-in value? Do you sell these bikes as is or remove the parts for "take-off" sales?
BROWN: Accessories increase the value somewhat, but remember that $500 of accessories does not equal $500 of value. On units three or fewer years old, we try to allow for 25 percent of accessories value. After that the value of accessories does not affect the unit much, (though an excellent high-dollar paint job of acceptable looks can). Units are sold as taken in with rare exceptions — usually when we think the P&A negatively affects the value or will make it difficult to sell.

How do you determine trade-in value?
BROWN: As stated earlier, it is a WHAG; however, we have the various books available that we consider, and there is also the local market. The economy now is playing a big game on value as people are trying to move units to get out of payments, or at least lower them.

What is your process for inspecting, correcting and prepping used units?
BROWN: We take all potential units to service for a quick safety-condition inspection and then if the trade is approved, it's run through for quick, minor necessary repairs and/or service. If the unit requires major work it is put into the regular flow of service work.

Does your dealership certify or warrant used units?
BROWN: This is a touchy item. We can and have, but usually if you do, you get into a "he said, she said" dispute. The easiest way is to offer a used warranty program for whatever cost it may be. Frankly, we take care of our customers, and if they are reasonable, the problem will be taken care of in a way that is agreeable.

Do you sell on consignment through any of the auction houses?
BROWN: Consignment units are generally sold when we [customer and dealership] cannot get together on trade-in value, and we agree to sell the unit and apply that price to a new unit. The biggest problem here is the customer may not realize that a trade-in decreases tax liability, and with Tennessee's tax rate (9.25 percent) that can be more than $1,000 extra. If we tell/show a customer that figure, they will generally trade first. If not, then it may be because they just want to get rid of the unit. Do we sell through an auction house? No way. We don't have enough used as it is. We are constantly buying and contacting newspaper ads to purchase. Our goal is one new to one used. This can be done. Look at the auto industry — they try to sell more used than new.

What margins do you average on used models?
BROWN: Margins on used are presently averaging over 19 percent. However, that is starting to change because of financing difficulties from various vendors — banks, credit unions, etc. Home equity loans are also drying up right now.

In conclusion, Brown says, "The used market has so much untapped potential it is scary. I jumped on my general managers from all three stores about getting used unit sales up, and they have found that doing so increases the new market also. Customers find out you will accept all used and they will trade with you and you do not have to play the low price game.

"Customers will also shop you for new if they know you will accept used. There are also a lot of potential customers who are looking at used for their first ride and then will come back for new knowing you will take the trade when they are ready," he says.