Why do some dealers have a blind spot on used cars?

Over the years, ICDP has commented many times about the wide variation in used car performance between dealers, and more generally between markets.  Whereas UK dealers – in general – have a very strong focus on used car performance, to the extent that it is the source of over a quarter of total profits, many dealers in other continental European markets – again in general – seem to treat used cars as a business that is the consequence of being in the new car business and pay relatively little attention to it.  As a result, the profit contribution is much lower – often less than 10% of the total.  There are obviously many influencing factors, not least whether the new car business or aftersales are relatively more profitable in some markets, thus making used cars look relatively less attractive.  However, in looking at the detailed operating practices, we have found that there is a genuine and long-standing opportunity for many dealers to improve used car performance. 

I was reminded of this by an article in the French publication, L’Argus, last week reporting on a survey conducted by Auto1 across 13 continental European markets.  As a major player in the B2B remarketing industry (as well as the owner of the Autohero used car B2C platform that I have referred to before), their primary interest was in the disposal channels used by the dealers they surveyed – a total of 9,150 apparently in their sample.  There were a couple points from the article (which mainly focused on the French results) that stood out for me. 

The first was that the French used car dealers sold 61% of their used cars to other traders, rather than the overall average across the sample (52%), and that they did so without involving specialists like Auto1, who would like dealers to use their platforms to determine a fair price, or put the car up in an online trade auction.  It implies that the practices employed are based on the traditional approach of a dealer having a network of local contacts, and knowing that Jacques is always interested in 5-6 year old volume brand cars, whereas if it is a younger premium brand car, then you should call Pierre.  Whilst this might be quick and reliable, and there may be a quid pro quo in that your network of traders come to you with the cars that you are interested in, it is hardly a robust process that takes advantage of the opportunities of the digital age to maximise used car profits.  As to the market differences, there are wide variations in the typical ownership cycles, and it is certainly possible that a French dealer sees more older cars unsuitable for resale in his own dealership than dealers in say Spain who only sell 41% of their used cars onto the trade according to the survey.  It is also possible that the Spanish dealers hold onto the stock, but then sit on it hoping for a buyer at the right price – which is also bad business in terms of best used car practice.

 The second point made in the L’Argus article based on the Auto1 survey was that only 8% of French dealers used digital platforms to estimate trade-in values, with 42% judging the value from similar classified advertisements, and 30% using their own previous sales experience.  Again, the availability of industry price guides and valuation platforms varies widely between markets, so the options available to a UK dealer to use price guides and electronic valuation tools including live market tracking, are much greater than in most other European markets.  Particularly at the moment when used car demand is strong and supply limited, it is more important than ever that pricing data reflects the week to week changes in values.  Without that, there is always a risk that you lose a customer because of an uncompetitive trade-in price, or that you over-pay for a trade-in that is now in over-supply.

 The two key rules of running a successful used car business are to buy well and sell well.  Buying well means actively seeking the product mix that meets demand of your customer base, and paying a price that reflects current values at the time of purchase.  Selling well means pricing the car at the level that balances a good profit after an appropriate preparation spend against a short holding period.  The faster you can sell cars, the sooner you have the space and capital released to buy another one and make another profit, and generate another customer for aftersales and F&I.  It is not a complicated business formula to describe, but it requires dedication and focus to operate well.  It is also increasingly dependent on data and accessing markets electronically on the buy and sell side – the point that Auto1 were obviously trying to make through their survey.