3 Lessons From Top-Performing Used Vehicle Retailers

May 4, 2015

I was struck by several take-aways from Automotive News’ Top 100 Dealer Groups Ranked By Used Vehicles report published last week.

  • The dealer groups’ collective performance keeps getting better. The report says the groups saw a combined 9.9 percent gain in retail big-sumo-vs-small-sumoused vehicle sales in 2014, 4 percent better than the industry as a whole.
  • Some groups enjoyed gains well above the average, enjoying year-over-year used vehicle sales growth north of 20 percent.
  • Acquisitions fueled a sizable share of the groups’ collective retail sales improvement, as well as what appears to be a disciplined emphasis on ongoing performance improvement.

As I reviewed these impressive achievements, I found myself asking: What does this mean for the industry, particularly the smaller dealer groups and standalone stores?

Perhaps the most obvious implication is that the public groups are casting the die for the industry. Their example demonstrates that a strong used vehicle operation is essential to ongoing success and prosperity. In addition, their growth-focused strategy also indicates that dealers who merely plug along in used cars will have a tougher time capturing the used vehicle market share they have come to expect.

But the good news—and the opportunity—lies in the lessons that can be gleaned by reviewing the dealer groups’ performance. Here are three that I believe are relevant for all dealers:

1. Emphasize a “retail-first” strategy. Among the top 100 dealer groups, a third reported declines in their wholesale units. In a handful of cases, the drop resulted from a dip in retail sales. For the vast majority, however, the wholesale unit decline accompanied an increase in retail sales. The upshot? The big groups are doing a better job retailing the units they acquire from auctions and trade-ins. As one dealer group executive says in the report, “We try to limit what we wholesale as much as possible.”

This emphasis on a “retail-first” strategy often translates to more productive in-store processes for acquiring trade-ins, both to feed the retail sales strategy and to acquire cars at lower costs, which benefits front-end margins. In addition, the strategy drives growth in F&I, service and parts revenues. In turn, total dealership profitability improves, a bottom line benefit that many of these groups apply to acquire more stores.

2. Use technology to its fullest. The Automotive News report quotes a dealer group CEO crediting inventory management technology with helping his 16-store operation acquire the right cars, and then price them right to retail quickly. On its face, the statement reads a little ho-hummy—most dealers use some kind of inventory management software, what’s the big deal?

 But I would submit that the technology is a big deal for the CEO and his in-store managers, as well as their peers on the list. I can personally attest that some of the larger, most-successful dealer groups not only invest in technologies to help them manage their used vehicle operations, they actually use the insights and tools to their fullest.

These groups recognize that in today’s market, where competition is fierce and margins are constantly under pressure, technology-driven decision-making and processes often spell the difference between making the right decision quickly and missing an opportunity.

3. Find your growth opportunities, and capitalize on them. As I mentioned earlier, the Top 100 list includes a few dealer groups who saw a year-over-year decline in retail volume. The rest, however, are keenly focused on growing their used vehicle operations. They have become students of their local markets. They know how their market share compares to the competition, down to individual vehicle segments, makes/models and even trim levels. They align their inventory acquisition, merchandising and pricing decisions to these market insights, and constantly pursue opportunities to increase their piece of the retail pie.

This “grow or go home” mentality in used vehicles can be difficult to initiate, let alone sustain. Inevitably, it requires everyone in the dealership to step up and embrace a new reality that the status quo isn’t good enough to efficiently and successfully grow a used vehicle department.

The underlying message here—that you’re either moving ahead in used vehicles or falling behind—probably won’t resonate with dealers who prefer to focus their attention and energy on new vehicle operations, which have been robust in recent years.

For them, I’d ask just one question: How much better could you be doing if you had a stronger used vehicle department?