So why are most used car operations within franchised dealerships not profitable? And when we say not profitable we mean just that; that when you isolate all the costs involved and assign them to the used car operation, as a successful independent used car business would have to do, you aren’t making a profit!
Well it’s primarily because no one owning or running a franchised dealership is taught how to run their used car business to succeed in the world of fiscal reality and truth; primarily accepting the fact that you are only retailing used cars at a profit during the first 30 days that a used car is in stock! And when we say “In Stock” that is the moment it becomes an asset of the business, when it is paid for, the day that the “Days In Stock Timer” is set; not when the car enters your used car display!
To highlight this, let us draw your attention to a basic used car profitability diagram;
- 0 – 30 Days = Retailing For Profit.
- 30 – 45 Days = Retailing Out Of Problems.
- 45 – 60 Days = Retailing and/or Disposing At A Loss.
Now the real challenge for most used car operations at franchised dealerships is not the fiscal understanding required to fully grasp the above, it is the fact that they are missing the operational procedures, the marketing expertise and the sales teams to actually work within the guidelines above; thus why the vast majority of used car operations in UK based franchised dealer networks are not actually making a profit, and fixing this will take a lot expertise, all of which will be missing!
In order to qualify that statement let’s look at some of the reasons why the vast majority of people owning or running franchised dealership based used car operations, will actually be losing money. The easy way to assess your actual used car profitability right now for 2019 would be to look at the rate of stock turn your used car business achieved during 2019, and so far during 2020; if the rate of stock turn wasn’t at the 10 times per annum, (30 days per unit), or quicker, then you do not have a profitable used car business.
Upon joining our used car business development and consultancy programmes, the average rate of stock turn being achieved by the participating dealerships is 6 times per annum, or 60 days per unit; so in reality all the used car businesses joining our programmes are losing money retailing used cars! Now there can be many reasons why this will be the case, but in this article let’s just look at one specific issue effecting used car profitability in 3 vital areas of operational and sales performance;
Used Car Preparation: Upon joining our used car business development and consultancy programmes, the average time taken to get a used car prepared, valeted and on display by the participating dealers is 10 days, (excluding paint rectification), from the time the used car concerned “actually” came into stock.
Therefore the businesses concerned have moved from a 30 day window of used car profitability to a 20 day window of profitability; way beyond the operational capabilities of most of the used car businesses in the UK!
Used Car Marketing And Information Flow: Most used car businesses unfortunately have a “Used Car Sales Prevention Officer” on site, and they are normally to be found residing in either the Administration Department or The Accounts Department; or if you are really unlucky you will have one in both departments.
These are the “Computer Says No” people who refuse to acknowledge the existence of any used car until it is invoiced, brought into to stock and on “The System!” So therefore every business has a virtual used car stock holding; one that they know is coming into to stock at some point but which isn’t being offered for sale prior to arrival on site. This will be making it impossible for the professional used car sales team to forward sell used car stock that it knows is arriving, therefore missing out on retail sales opportunities and increased revenues!
Used Car Sales Professionals: Now here we have a real problem affecting the profitability of used car businesses; none of you are employing used car sales professionals, or any sales professionals for that matter. We comment regularly on the lack of sales professionals employed in the Automotive Sector, most recently in our article You Start Negotiating When You’ve F@#ked Up The Sales Process! So we won’t repeat the content of that article here.
Those wishing to read the article above just need to follow the embedded link to the article, but in brevity, until the sector embraces and starts employing and developing genuine sales professionals your used car business will continue to not be profitable, and that includes used car sales professionals and used car managers; none of whom are being sought, developed or trained by any manufacturers retailing cars in the UK.
So the end result is that for 95% of you reading this article your used car operation will be manned by lazy order takers who are waiting for the phone to ring, (not sales professionals), and no used car manager; no one with experience required to develop and grow your used car operation profitably.
So there is quite a “To Do List” if the used car operations of franchised dealerships are to become profitable; at the moment most of you would be more profitable by making any buyer you employ redundant, trading part exchanges as they arrive into stock and saving the used car marketing spend; you would be better off, and probably by in excess of £100,000 Per Annum!
However, for those open minded enough to embrace the harsh realities and the fact that someone has got to help them to take on board the highly specialised used car business development expertise required to become a profitable and growing used car business, then luckily help is at hand.
Any of you making up “The 5%” who are curious to explore and discuss the points listed in this article, because they resonate and you are looking to see how you can make more money from selling used cars, you need only contact Andrew Banning at ajb@autoformance.com or Malcolm Thomas at mgt@autoformance.com in the first instance, in order to arrange a no obligation exploratory discussion.
Alternatively please feel free to call me on 0044 7796 260261.
For more information about our services please visit our website at www.autoformance.com
I look forward to hearing from you.
Regards. Andrew.
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