Joel Shashoua

THE impact dealers have on certain areas of their businesses is being increasingly controlled by OEMs and now regulators.

With the combination of bonus margin programs, capped-price servicing, restrictive marketing guidelines and now the new ASIC guidelines, almost all departments in the dealership are being regulated to minimise the entrepreneurial spirit of a dealer.

There is, however, one untouched area which could represent the final frontier of dealership profitability: used cars.

Used cars is one area of dealerships’ operations where dealers are the masters of their own destiny and, despite all the talk of the future of transportation and ownership models such as subscription, mobility, electric vehicles and autonomous vehicles, used cars will remain largely unaffected.

This is because no matter what technology resides in the cars of the future, they will still be cars and there will always be an appetite for a great-value used-car proposition to a customer.

And we know that car ownership is still a value most Australians aspire to and we know that owning a great car is still an aspiration second only to owning a house.

But, within dealerships, in the race to meet new-car sales targets (and therefore dealer bonuses) the art of used cars is in danger of being lost.

The lure of sales guilds, overseas trips and shiny new models are distracting salespeople from entering the used vehicle department.

New cars may have the shine but used cars is where the strong commissions are at for salespeople.

This, combined with being able to deliver a vehicle to the customer quickly, having unique stock and not having to manage a back order pipeline, makes a used-car sales role appealing to many in the industry.

A mentor once told me that the key to any successful dealership is having a great used-car department. If you don’t have space to display cars – go and find it. If you aren’t getting enough trades from your new-car department – go and find stock. Invest in people who can see the opportunity. The best operators can look at a car and tell you the gross that’s in it.

Here are some best-practice concepts in running a successful used-car operation:

Give someone the responsibility of sourcing vehicles

By comparison, if we look at the real estate industry, most of the sale is made in the listing. If a salesperson lists and sells a property they earn extra (sometimes double) the commission. Best-practice dealers reward for the sourcing of the vehicle, not just the selling.

Do you reward a new car salesperson for securing a great trade-in? If a new deal is lost to another brand, do you have a system in place to try to secure the trade? Do you fight harder for a trade-in deal?

All of these practices should be managed and incentivised centrally by one person. Typically this is the used-car manager but it does not have to be.

Days to yard

Best practice is three days from in-stock to on-yard.

A lot of dealerships we see struggle with this for a number of reasons. One major hurdle is internal service and panel departments prioritising retail work over used-car reconditioning. This is a fair reason, however we need to examine the real cost.

Yes, the service department might make $150 by servicing the vehicle and changing some

tyres, however what is the opportunity cost of having the used car off the road waiting for an extra week?

If internal departments can get the work done in a timely manner then this is the best outcome. However, I would challenge operators to examine the cost of delays versus expanding the service department or subletting the work to the local community. It may work out better in the long run and you are giving work to your parts customers in the area.

Return on Investment (ROI)

With the advent of the internet and the associated ‘open pricing’ where customers can see all vehicles and prices, looking at just gross dollars does not constitute success in used vehicles.

We need to look at return on investment for each vehicle – or, in other words, gross profit AND time in stock. As a rule of thumb, used vehicles sold within 30 days of stocking usually average over 150 per cent ROI.

ROI = Used gross profit / stockturns X 100 per cent.

Note that stockturns is calculated by dividing the number of days in the year (365) by the number of days in stock.

ROI can be measured in total for the department, by model, by ageing, or by vehicle. Used vehicles sold after 60 days usually have an ROI below 80 per cent. This contrasts with industry best practice which is generally over 75 per cent.

The average used-vehicle department in Australia has an ROI below 40 per cent, indicating a higher percentage are sold at a longer holding period and/or are being sold at 60 days for minimal GP to move them out of stock.

Your efforts should be directed on to how to sell used stock in the first 15 days.

Be critical of each car

Remember there are only three reasons why a car does not sell:

1. It is not advertised correctly.
2. It is not priced correctly.
3. It is not presented correctly.

Have a look at each of your vehicles in stock and ask these questions.

• Is the car advertised as the right model with all the options?
• Are the comments worded in a way to encourage a buyer to enquire?
• Is the vehicle clean and 100 per cent reconditioned?
• Is the vehicle priced correctly relative to the market – not what is was bought for?

If you find you are not getting enquiries, one of these answers will hold the key.

The gross is made in the buying, not the selling

The art of used cars is all in the buying. See the gross up front, train your people in being able to quickly assess the gross potential and get it realised before the market changes.

If the market has shifted and therefore the gross opportunity is gone, always remember ‘your first loss is your best loss’ and move on to the next one.

Bring the sexy back for used-car teams

Don’t let the OEMs woo away your greatest salespeople! Run your own sales guild for used cars. Offer incentives which reward the best sales team members with overseas trips, peer recognition and bonus programs.

Find a way to incentivise your used-car people so that it becomes the department to aspire to.

Joel Shashoua is a director, Motor Industry Services, at KPMG Enterprise

Here is one of two examples of how KPMG MIS calculates the return on investment in used car operations. Example 2 on next page.

Example 1:

Vehicle sold for $20,000 after 25 days with $3000 gross

Margin = gross/cost of sales = $3000/$20,000 = 15%

Days in stock = 25

Stock turn = 365 days/25 days = 14.6

ROI = stock turn x margin = 14.6 x 15 = 219%

Example 2:

Vehicle sold for $50,000 after 45 days with $3300 gross

Margin = gross/cost of sales = $3300/$50,000 = 6.6%

Days in stock = 45

Stock turn = 365 days/45 days = 8.1

ROI = stock turn x margin = 8.1 x 6.6 = 53%

By Joel Shashoua