how Independent Dealers Can Fight Shrinking Margins

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The rising costs of acquiring inventory mean compressed margins for dealers, and an increased focus on methods to improve profits. For independent dealers looking for a few operational actions they can take to help improve numbers, consider the following suggestions.

Source Smarter
It’s often easier for dealers to make their money at acquisition. Take note of the units that sell well and their typical margins. From there, determine an acceptable range that your dealership will stick to for acquiring similar units.

Beyond just researching inventory that sells well on your lot, consider the options available to source inventory. Physical auctions, digital auctions and a local dealer network are conventional inventory sources. Is there a particular channel where can you typically get the best deals to stock your dealership lot? Develop a dealership methodology to acquire units. For example, perhaps before going to a physical auction, check what’s available on OVE or Manheim Express.

Improve Speed to Market
Average dealers are typically able to get a vehicle front-line ready in seven to 10 days. Of course, there are a lot of factors at play that can add or decrease the time it takes to get a vehicle ready for customers. Transportation, reconditioning, and potential repairs are all common components that increase the overall time it takes to get a vehicle customer-ready.

Though these delays mean that units might not be on your lot right away, posting units on digital dealership platforms shortly after acquiring vehicles give potential customers a chance to digitally view inventory coming soon. The Cox Automotive 2018 buyer’s journey study found that a majority of car buyers that shopped online spent 60 percent of their time looking online for vehicles. It’s likely that by the time a customer wants to stop by to view a particular unit, it’s already front-line ready and available for a customer to test drive.

Have a Plan for Aged Units
Every vehicle at your dealership needs to have an exit strategy from the moment it reaches your lot. No dealer wants to take inventory back to auction or digitally wholesale it to another dealer. A defined strategy for aged inventory can ensure that units don’t fall through the cracks. For many dealers, there’s a tiered strategy with different courses of action at the 30, 45 and 60 day marks.

Operational changes don’t lead to results overnight. However, taking deliberate steps to improve overall operations will often help dealers realize additional profitability.