Drunk on Profits: Preparing for the Used Car Hangover

Dealers are thriving on the rewards of a low-supply, high-demand market. Intoxicated on the profits, we’re hearing many dealers brag about their numbers compared to last year. But the sobering truth is that last year was a pandemic, and crushing last year’s numbers is just par for the course in today’s market.

What we should be hearing from dealers is how they plan to take advantage of this unprecedented profitability and use it as an opportunity to put better processes in place and maintain this upturn as their new way of doing business.

Now is an important time to think about long-term success because we’re already seeing changes in the market. Prices will level out as chips come in, inventory will become more abundant and wholesale and retail will gradually normalize. If you expect to go back to business as usual, you can expect to see a drop in your profitability. Instead, here’s how to keep the momentum going.

Identify cracks in your current processes.

As dealers have seen their inventory turn and profits increase greatly, their focus has been on sales and acquisition. That means many dealers are neglecting their reconditioning process and leaving money on the table.

When business is slow, dealers don’t worry about process. But when things heat up, you want to be able to rely on those improved processes to capitalize on potential growth. With aged inventory cleared out of your lot, now is the ideal time to nail down those internal reconditioning processes that will keep you profitable, no matter what market changes are coming.

Know what you need to do to keep high turn profitability going.

If you want to maintain this high turn rate, continue to hold lower levels of inventory. Keep in mind, however, that holding lower inventory levels puts even more pressure on your internal processes. Speed to market is currently beating out cost to market, so a faster, more efficient recon process is key.

Start by evolving how you treat inventory and gain a better understanding of your bronze, gold and platinum cars. With the right tools and technology, you can decide what the best order is to push those cars through recon to reach optimal efficiency and profitability.

Focus on growth rather than playing catch-up.

If you’re the kind of dealer who is selling cars before they are fully reconditioned and front-line ready, know that making accurate recon estimates and sticking to them is critical. You won’t know what you’ve made on that car until after recon is done.

Also consider that having to focus on making a profit on that car could be pulling focus from acquiring more inventory and attracting more customers. If you already have an efficient recon process in place, then acquisition, recon and merchandising can all work together to help you be profitable in any market conditions. It’s the difference between playing catch-up and being able to grow.

Stop the hangover before it starts.

Profiting during the pandemic market was easy. But not changing your processes during this time is a sure way to let the market control you. What’s more impressive is when the market goes down and you’re still able to hold on to that profitability. That’s the trademark of a truly successful dealer who has the right processes in place.

Take this opportunity to adjust your internal processes to sustain recon efficiency, high turn and profitability in whatever the new normal is.