In addition to larger profit margins on used vehicles, dealerships also see an opportunity to expand their service bay business
Fort Wayne, Ind.—As new vehicle prices reach new highs, the used car market is seeing volume increases as consumers look toward affordability. And the size and profitability of the used market is attracting increasing dealership participation.
“Besides their larger profit margins per vehicle than new cars and light trucks, used autos provide vehicle dealers with lucrative opportunities to expand their service bay business,” states a recent Lang Aftermarket iReport. “These developments will have long-lasting consequences for dealers’ repair market share and for the breadth of nameplates and vehicle ages serviced in their bays.”
The following are highlights from Lang’s analysis.
Used Vehicles Help Dealers’ Bay Volume
Used-vehicle sales can provide dealership bays with much-needed business, replacing lost bay volume resulting from fewer vehicles under 5 years old on U.S. roads, which had been the traditional mainstay of dealer service bay volume.
Many dealerships are bundling service contracts with used-vehicle sales. Dealers can develop greater, more immediate bay business from used-vehicle buyers than new vehicle customers as used vehicles require more maintenance per mile during the first three years following the sale.
Win, Win, Win Situation for Dealers
With dealerships capturing only about 40% of the used vehicle market nationwide, there is room for them to expand their presence and benefit in three ways: additional unit sales, a higher gross margin per used sale than for new vehicles, and increased service bay traffic.
Increased Sweet Spot Repair Competition
Many used vehicles sold by dealerships are in the early years of the repair-age sweet spot (6 to 10 years old) or will enter it soon (particularly off-lease vehicles). Dealers are increasingly competing head-on with independent service provider outlets for the sweet spot repair business. Vehicles in the sweet spot years produce above-average repair volume per mile across many products.
Shifting Aftermarket Business
The changing used vehicle marketplace will significantly influence where repairs are performed, the brands of products used, and the distribution channels through which products are supplied.
Dealerships’ reconditioning of used vehicles and the service bay business they generate provide an opportunity for aftermarket outlets to increase parts sales to dealers, since many used vehicles handled by dealerships are different nameplates from those they sell new.
For many used vehicles, reconditioning costs can top $1,400 in bay business for dealerships. This is a significant and growing factor driving the expansion of dealers in the nation’s light-vehicle Do-It-For-Me (DIFM) market.
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