Higher Profits through Used Vehicle Sales
Dealers are currently navigating through a state of high demand for used vehicles and what it means to the franchise owners. This recent inventory shortage is driven by several factors, including the chips that have been delayed, other parts and materials that aren’t being produced or delivered, diminished workforce due to illness, shutdowns, and interruption of supply chain internationally. We constantly see ads promising consumers the highest price for used cars. As a result, franchise stores are investing in older, used, high-mileage inventory, while also retaining vehicles taken on trade which would have previously gone to auction.
Back at the Dealership
None of these circumstances have diminished the overhead, payroll, and ancillary costs for dealerships — all dealers need to sell cars to stay in business. New franchised stores are turning to selling used vehicles more often than ever before. The outcome is causing dealers to move into sales of higher mileage bands, selling a category of vehicles they haven’t necessarily sold before, and they just don’t have the right products for it. In turn, dealers are leaving money on the table because they just don’t have the ancillary products to cover all of these vehicles, which are well beyond the eligibility of the manufacturer’s programs. Also, these products don’t typically fit into their reinsurance model.
Dealers who never required these products before now need to learn about high mileage F&I solutions. Many franchise dealers are more familiar with OEM, reinsurance, and high-mileage solutions that max out at 100,000-120,000 miles. Today, dealers need eligible products to apply and capture F&I profits at much higher bands, well over 125,000 and as high as 200,000. Franchise stores are learning there are profits to be made, and products to be sold, on vehicles with extraordinary high mileage. The primary products with high value for consumers and dealers are vehicle service contracts, tire and wheel, key, appearance protection, and paint-less dent repair (PDR).
The Real Benefits
Understanding and selling good quality, high-mileage service contracts doesn’t have to be an intimidating prospect. Product is available that provides solid coverage at competitive rates, protecting the customer’s pocket and the dealer’s reputation, while creating a valuable profit center during this shift to high-mileage inventory. But, dealers may not know who to partner with. If it’s new to you, who is going to give you a valuable/reputable product? Who can you trust? The things to look out for include a partner with enough experience to know how to rate appropriately and has good coverage at competitive prices that won’t put the program upside down — a company that can source the parts, (which is another challenge in the high-mileage space), because they need to have the suppliers who can guarantee older parts.
There are real benefits in retaining used vehicles and developing a profit center around them. The profit margins on used versus new are often substantially more, so there is less reliance on F&I to solidify profits. Alignment with reputable, high-mileage providers will help increase the margins further on these sales. You need a provider that goes well beyond the 120,000 miles, or you will be missing the opportunity for profit.
Regarding reinsurance, if a dealer has his own VSC/warranty they will undoubtedly want safe vehicles for their reinsurance programs. They want a vehicle that doesn’t anticipate high loss, where parts can be easily sourced, and vehicles which are rated properly. They need competitive products that afford both the customer and the dealer protection. Unfortunately, in some cases, dealers are not selling high-mileage vehicle service contracts and are not protecting their customer or the dealership’s reputation. Extended warranties and vehicle service contracts offered by dealers can provide a considerable amount of reliable coverage for consumers. It’s far better to keep customers happy, and a used vehicle customer will want and appreciate the peace of mind of extended coverage.
While true high-mileage programs are not typically re-insurable, look for that to become more common place soon.
Guaranteed Lift to PVR
An accumulation and analysis of over 23 years of data has verified that selling high-mileage products is a guaranteed lift to PVR. Every sale is a profit to the dealership and peace of mind for customers. Even with a third-party ancillary product, (not a dealer’s own reinsurance and not the factory warranty), about 85% of customers will go back to their dealer (even off brand) for service, driving more service work to the dealership and not to a local garage or mechanic. These products promote customer loyalty.
Most dealerships have already moved into a higher mileage band than they sold previously, but the majority are having difficulty finding these quality ancillary products. If you only have coverage up to 120,000 miles, you are missing out on significant profits by not partnering with a reputable high-mileage provider.
Rick Tudor is vice president of operations for C.A.R.S. Protection Plus, Inc.