Aug. 31, 2017—While more used vehicles on the road is, ideally, a good sign for independent auto repair shops, a new report from Lang Marketing shows that dealerships are getting better at taking advantage of used vehicles as new car sales slump.
"New vehicle dealers sold more than 15 million used cars and light trucks last year, only 12 percent below their 2016 new vehicle unit volume," said Lang Marketing president Jim Lang.
"Dealers earn substantially more profit when selling a used vehicle than they do in a typical new car and light truck transaction," he continued. "The used vehicle market has become an important factor in dealer strategies to build service bay volume."
As signaled by past Lang Mareketing reports, dealers are slowly regaining a healthy portion of the service market share. Now, the new report reveals that dealers earn more profit when selling a used vehicle than they do in a typical new car and light truck sales transaction. Following the historic decline of the new vehicle market following the Great Recession of 2008, many dealers turned to used vehicles to replace plummeting new vehicle volume.
"This, in addition to less warranty work resulting from improved new vehicle quality, alerted dealers to the need for developing new strategies to market their service bays," Lang said.
As new car and light truck volume plunged 6 million units during 2009, dealers began to emphasize used vehicle sales to replace the massive loss of new vehicle volume. As a result of concerted dealer efforts, used vehicle sales have increased over each of the last seven years, so that by 2016 used volume neared 15.5 million, just 2 million shy of the record-setting 17.6 million 2016 new car and light truck total recorded by dealers.
Used vehicles provide dealers substantially more profit per sale than their average new car and light truck transaction. Not only can used vehicles substantially boost the bottom line of dealers, but used cars and light trucks also provide an additional profit opportunity for dealers to increase their service bay volume.
Used vehicles provide dealers the opportunity to expand their service bay business across vehicle age groups. As a result of the steady increase in used vehicle sales by dealers and the fact that many of these cars and light trucks are 3-5 years old, used vehicle sales will generate a much larger share of dealer bay volume over the next several years than in the past. This will expand the age mix of vehicles serviced in Dealer bays.
Many dealers are using their bays to increase used vehicle volume by offering bay services as an added inducement for customers to buy used vehicles from them rather than from other sources. Dealers often provide special service discounts and other incentives to used vehicle buyers to encourage them to return to their service bays. Many dealers are bundling used vehicle sales with maintenance contracts to boost service bay volume.