State of the Industry – Used Car Dealers

Gone are the days of viewing used car professionals as slick salespersons who will do anything to sell you a lemon. With a slowly recovering economy, consumers have been increasingly turning to used car dealers as both a viable and economical way to purchase their cars. With modest growth projected in the industry, we look at some opportunities, challenges and ways to ensure the ongoing success of used car dealers.

The Good News

1. The recent and ongoing economic recovery has led to a decrease in unemployment and an increase in consumer spending. Paired with low interest rates from the Bank of Canada, some of this increased spending is being channeled towards vehicle purchases.
2. Consumer preferences are increasingly shifting towards purchases of used rather than new vehicles. Improved vehicle manufacturing capabilities have led to improved vehicle quality and increased vehicle longevity, making the low price of used vehicles an attractive alternative to purchasing new vehicles.

The Not So Good News

1. With nearly 8,000 used car dealers in Canada (over 3,000 in Ontario), price competition is rampant in the industry. The ability to view the Canadian Black Book prices and dealer inventories online have empowered consumers to easily shop around for the best prices, financing rates and warranties.
2. The high US dollar has led to a reduced vehicle supply in Canada, as it is increasingly expensive to purchase high quality vehicles from the US. Dealers, however, are limited in transferring this cost to consumers, as higher used car sales prices can push customers into the new car market. As a result, Canadian dealers are seeing increased inventory costs and reduced profit margins.

Ways to Succeed

1. High and volatile fuel prices have led to increased demand for compact, subcompact, hybrid and electric vehicles. Dealers with a focus on this market have typically achieved strong sales, although somewhat offset by the difficulty to provide service and parts for hybrid and electric vehicles.
2. Despite high and volatile fuel prices, demand for trucks continues to be strong. Dealers are typically able to charge a premium on the sale of trucks.
3. As price competition is high in the industry, focussing on customer service quality is more important than ever. Full disclosure of the condition of inventory helps the dealer build trust with customers. The repairs and service division can also be used in building trust. Improved customer service often leads to increased customer loyalty and vehicle sales, typically leading to improved profit margins.
4. With the high cost of maintaining a fleet of vehicles in inventory, cashflow management is a necessary skill for dealership managers. Having a good understanding of the dealership’s cost structure, with controls in place to prevent excessive costs, will help ensure the viability of operations.

Do you or your client operate a used car dealership? Are you thinking about opening, purchasing or expanding a dealership? We know the ups and downs and ins and outs of the business. Give the experts at Davis Martindale a call – we would love to help.