Margin Compression – 3 Ways to Help Secure Profit in Used Cars

Margin Compression - Secure Your Profit

Margin compression. You could say it’s an industry buzzword. However, it’s been a topic of discussion for a few years now. Profits in new cars are effectively gone for good. And they have been for some time. Profits with used cars are, well, compressing.

Beyond the phrase margin compression, what can dealers do about this glaring reality? The increasing supply of wholesale vehicles puts downward pressure on retail margins, particularly for volume-focused dealers. And nowadays, you can’t make up for the difference simply by selling more cars. Dealers must optimize their process, and fine tune their strategy.

Margin compression isn’t the problem. Your strategy is.

Progressive dealers understand that margin compression isn’t the problem. It’s a result, or a symptom really, of flaws in your process. And with your strategy. They recognize the specific points within their process that steal from their bottom line. They also know which aspects of their strategy eat at their profits too.

Things like: where and how you acquire used vehicles, your disposition strategy, and turn.

3 Ways to Secure Profit in Used Cars

In this video, you get a glimpse of our conversation with three dealers sharing tips and best practices for how they are securing their margins. The conversation originally took place in September 2018.

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Catch the complete conversation on our YouTube Live Video titled, 
AC Mastermind Session – Used Car Marketing Strategies

One such dealer is Aaron Gomez, Owner of KMG Management. Aaron has been in vehicle purchasing and wholesale for more than 15 years.

Part of his strategy is in how he sources vehicles. In particular, he makes acquiring vehicles from private sellers a priority. Auctions and trade-ins are limiting. The former comes with high costs. Both come with limited selection. Not to mention that the vehicles at auction are typically there because they didn’t sell in retail.

By making acquiring vehicles from private sellers a preferred source, he gets better selection, and spends less acquiring them. Sounds simple enough, yes. But it is an art.

Another dealer, Rickey Bomar from the Duval Motor Company, makes pricing his vehicles a big part of the strategy. Careful not to “discount the discount,” he says, Bomar prices to sell at retail, ideally within 15 days.

He also points out that training your people can’t be taken lightly. Developing skills in your team members to be effective buyers is critical. Be it acquiring vehicles from private sellers or on trade.

Brent Faron at Bo Beuckman Ford keeps a close eye on turn. He likes to see vehicles move off the lot within 10 days. If they aren’t, then he does not hesitate to start marketing them for wholesale.

Another aspect of Brent’s strategy that secures margins? Knowing what he plans to do with vehicles as he acquires them. In other words, your disposition strategy.

Brent’s knack for disposition is cutting edge. By utilizing today’s tools and information, Brent has a feel for his profitability going into each acquisition, be it on trade, auction, or from a private seller.

Focus on the things you can control

Vehicle acquisition, disposition, and turn – three things you can control or influence that directly impact your bottom line. Is there more to it? Certainly, but these are three things you can focus on immediately.

These dealers are able to combat margin compression tactically, not theoretically, and grow their market share while securing their profits. Equipped with this knowledge, so can you.

Learn more about the Used Car Marketing Strategies Mastermind Series

This video and podcast were derived from the AC Mastermind Session – Used Car Marketing Strategies. The Used Car Marketing Strategies Mastermind is one of several series of recurring web events we conduct on a regular basis, featuring guests panelists like Aaron, Brent, and Rickey.

The purpose of these Mastermind events is to explore subjects like this and other aspects of the Auto Retail business through meaningful conversation.

About the Author

Ryan G
Ryan Gerardi is Chief Editor of AutoConverse Magazine and Executive Producer and Host of the AutoConverse Podcast and Live Weekly Broadcast. He is also Founder & CEO of AutoConversion with nearly 20 years experience in the automotive industry. Ryan concentrates his efforts today on exploring people, ideas, and technologies related to how we get around and how we are connected.