Used car prices are lower than they’ve been in years.
Back in 2020, limited inventory supply couldn’t meet customer demand—and as a result, dealerships could charge higher prices and boost profit margins.
But the tide has turned. Now, despite lower car prices, fewer consumers search for a new car and instead hang on to their old, used cars for longer because of higher interest rates. Because of this, the automotive industry has a renewed focus on the used car and fixed operations departments.
If you’re a dealer trying to keep up with these market changes, it may be time to reassess your established processes to improve efficiency and profit opportunities.
The Role of Software
Leveraging advanced tech and software can be a game-changer in business. We all know it…so we should ensure we use it. Fifty percent of dealerships today are using “homegrown tools,” like whiteboards and spreadsheets, to get their cars frontline-ready. And 70 percent of those using these outdated tools have admitted they’re not confident their data is accurate. Yikes.
You need to trust your data. In the realm of used car operations, that means using tools to track each step of a vehicle’s reconditioning process. The right tools can also enable and improve transparency between users. For instance, software tools like the Repair Exchange can connect businesses that need repairs with technicians. They can also be project management tools to track parts, handle inventory, and streamline communications.
But remember this: While using new tech can boost efficiency, a software tool alone isn’t going to solve everything. The best strategies and systems come from a fusion of people, processes, and tools.
The Importance of Communication and Alignment
This is where the “people and process” part comes into play: Preparing used cars for sale is complicated. It involves collaborating with several key players, including used car managers, service managers, parts departments, and third-party vendors. Many dealers see that getting used cars frontline-ready can cause friction among different departments, particularly between fixed ops and the used car department.
To remedy that, it’s critical to ensure everyone is on the same page (otherwise, the whole process can veer off course).
In addition to using software tools for communication and vehicle status tracking, everyone involved must have clear-cut responsibilities. Those responsibilities, outcome expectations, and timelines should be communicated in full to every team and department.
This focus on appropriate communication will improve execution and streamline efficiency across the entire process.
Optimizing Costs and Maximizing Revenue
On average, dealers spend about $1,500 per car to get it frontline-ready. At the end of July 2024, over two million unsold vehicles were sitting on lots across the U.S. This means dealers nationwide are investing hundreds of millions of dollars in cars they haven’t made a profit on.
That’s why the ultimate goal is to make sound car investments and then get those cars resold as quickly as possible to optimize costs and maximize revenue.
Rethinking Acquisitions: The adage, “You make money when you buy, not when you sell,” certainly applies to the acquisition and resale of used cars. Dealers need to be tactful in their approach. Refining that frontline appraisal process is critical.
Some dealers prefer to focus on quality trade-ins, selling cars that align with the brand at their dealership. For instance, if you work at a Ford dealership, you may lean toward selling more Ford used cars.
However, many dealerships are now taking a progressive approach to vehicle acquisitions. They’re buying a wider variety of cars rather than just high-quality trade-ins and focusing on the timing of selling wholesale rather than retail. This broader approach could maximize profit potential and keep inventory moving if done well.
Vehicle Reconditioning: Understanding cost versus value is a simple concept when reconditioning the cars you’ve purchased, but putting it into practice can be much more complicated. While it’s essential to prep vehicles for resale, over-investing can ultimately erode profit margins.
Try to strike the right balance by thoroughly evaluating each car’s condition before deciding on what repairs it needs. This doesn’t mean cutting corners—you want to maintain your brand’s equity and do right by your customers—it simply means being prudent in your approach.
Don’t just guess or make assumptions. Consult technicians and assess available data to decide on what repairs are worth your while.
The Takeaway
Current consumer trends can be tricky to navigate. Still, they could benefit fixed ops and used car departments in this case—as long as you capitalize on the right opportunities.
Most dealerships are overdue for an update and improvement to their existing processes and modes of communication and collaboration.
Dealerships can improve efficiency and boost profitability by enhancing communication, aligning on desired outcomes, implementing new tech (the right way), and adopting strategic approaches to vehicle acquisition and reconditioning. These strategic approaches put dealerships in control, empowering them to make sound business decisions.
Refining these processes allows them to offer exceptional service, build stronger customer relationships, and better serve their communities.
Randy Kobat is President of Repair OnDemand.
