Pre-Owned Powerhouse

At GSA we track benchmarks through our involvement with dealer groups, such as the Best Operators Club. Some of the members have kindly consented to let us share their numbers from our real-time, web-based data reporting system.

This month we discuss a dealership that is highly-profitable through their pre-owned motorcycle and ATV sales. Economic downturns often benefit the sales of pre-owned products due to lower price points. In addition, pre-owned units should hold a much higher profit margin than new units. After all, the number one rule for growing and succeeding in this department is to buy low and sell high. Unless you focus on this rule, you may suffer painful lessons when you get a unit that requires more reconditioning than anticipated or when you overestimate the actual market value for a unit.

This dealership example is a rural dealer that sold 75 pre-owned units and almost 900 new in 2008. Although the new to pre-owned ratio is low, he is working hard to grow this business. He typically employs one sales manager and five to six salespeople with two support personnel.

Chart 1 reveals a shining example of a truly well-managed operation. This dealer beats all the benchmarks as well as the TBOC numbers. Despite how tough 2008 was for most dealers, look at how they have controlled expenses and remained profitable.

Chart 1

LINGO

CY: current year

PVS: per vehicle sold

TBOC: average of the top five BOC members in this category

* Some rows and columns without data have been removed to reduce table sizes.

As you can see in Chart 2, he holds a very healthy 25% margin on pre-owned bikes, well beyond the benchmark of 18% and the TBOC average of 20%. His 24.5% on pre-owned ATVs is exceptional.

Chart 2

Note: Our data reporting and analysis system is available for any dealership to use for a nominal fee. If you want more info on the Voyager IV data reporting system or BOC, please e-mail [email protected] or visit our website at www.gartsutton.com.

How do you achieve numbers like this? First, determine what your margin will be and then structure the sales deal accordingly. Start with the actual value of the unit in your market. Remember, book value is only a guideline. Next, subtract your desired margin and the reconditioning costs to end up with the trade or purchase value. If you over-allow on a trade, treat the difference as a discount off the new unit, because that is what it really is. Otherwise you will inflate your new margins while deflating your pre-owned margins.

The real task is justifying the actual value to your customer. This dealer has the sales manager conduct a walk-around with a written appraisal form. The sales manager diplomatically points out the dents and scratches as he records them. This helps the customer realize that their prized unit may not be as cherry as they thought. “The sales manager always tries to speak positively concerning the trade-in and what a good price we should be able to allow, less any costs for repair or reconditioning,” says the dealer. Avoid any possibility of insulting the customer — many have an emotional attachment to their trade.

The appraisal form is used to establish value and provide protection for the dealership and the customer by recording details of the trade-in agreement. Appraisals should only be valid for 24 hours to reduce the potential for additional unit damage or removal of accessories.

Other pre-owned musts:
• Encourage salespeople to ask for trade-ins
• Advertise your pre-owned business — include the line “we take trades” in all your ads
• Let customers know you are always looking for clean, well-maintained units
• Once the unit is traded, make sure it is reconditioned, cleaned and serviced quickly

• Place your pre-owned units on the floor with your new units — this increases the value in the customer’s mind

Go after this business! In these tough economic times, the pre-owned business can be a significant profit center for your dealership.