Rohan Meyer

TREATING each of your used cars as an investment on which you are required to maximise a return creates a mindset that can transform gross profits from the used-car department.

Instead of watching accumulated gross profits over all stock over a month, focusing on maximising returns on the money invested in each and every used car in stock, by the day, is a certain route to re-energising this important part of dealer operations.

This is the view of Rohan Meyer, senior manager at KPMG Motor Industry Services, who is presenting a workshop on ROI in used cars at the upcoming 2019 AADA Convention and Expo which will be held at the Melbourne Convention and Exhibition Centre from September 9-11.

“These days the gross profit is very dependent on the time-to-sell, Mr Meyer told GoAutoNews Premium. “People think it is just about stock turn. It is, but what people also need to think about is the time it takes to do all the steps you need to perform right up until you sell the car.

“It is not just having the thing sitting on your yard. The big killer, for example, is the time it takes to go through each of the steps that are necessary to get the car into stock.

“For example, unless you are proactive, until the deal for the purchase of the car is processed, the used car does not come into stock in the DMS. This means the service department cannot get started on the reconditioning.

“So ROI and the time to sell is as much about doing everything necessary up until the time the car is ready for sale.

“In other words, the more disciplined a dealership is in each of the steps of putting the car through that process results in a much higher ROI.

“How long did it take you to put the car into stock? If it isn’t done on day one you are wasting your time already. How long did it take to recondition it? How long did it take you to get it up on the website with pictures?”

Mr Meyer said: “If you don’t get the car up on the website within 10 days, you have just lost some of you best opportunities for a maximum return on investment.

“You have taken up 10 days of holding and got nothing for it,” he said.

“You are paying floorplan on the cars but also in those 10 days the used cars have devalued because they get older every month and drop by $200 or $300 a month on average. So in those 10 days there is $30 gone and if you are doing 100 used cars a month there is $3000 gone in those 10 days before the buyers even knew you had that car for sale.

“An average dealer car get a return on investment of something like 30 per cent to 35 per cent on used cars and the best dealers can get 75 per cent-plus on their used-car inventory.

“If you look at the good dealers, I will guarantee you that the ROI on the cars they sell in the first 15 days is something like 700 per cent.

“Say you are going to gross $1500, I would rather gross $1500 in 10 days than gross $1500 in 25 or 30 days.

“Some dealers keep their cars for months and it does not make any sense because I can show you that if you have kept a car for 90 days then on average your ROI will only be 30 per cent or 20 per cent on that car compared to 700 per cent give or take if you had moved the car in 10 days.

“It is not just the $1500. Think about it this way. Say there are 360 days in a year and you sell a car every 60 days. You then reinvest the money and turn the car in another 60 days. But you are only providing yourself with the opportunity to get a return on the investment tied up in that car six times a year.

“But what if you could turn the cars over twice as fast? What if you could turn the car over in 30 days? Then you have given yourself 12 opportunities to make a return on that same money invested.

“And that is what drives return on used-car investment.

“Success in used cars is selling each car as quickly as possible for a favourable gross but not necessarily the best gross. If you hold out for another $500, you may wind up holding it for another 20 days which will make the result much less compelling for the dealership,” Mr Meyer said.

By John Mellor