Besides generating 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
Fort Wayne, Ind.—The increase of Covid-19 accelerated used vehicle sales, while reducing the new vehicle market in the U.S. by approximately 20 percent. This pushed the 2020 used market to nearly three time the unit volume of new vehicle sales, according to Lang Marketing’s latest report. And the size and profitability of the used market is attracting growing vehicle dealer participation.
“Besides generating 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 the 2021 Lang Aftermarket Annual. “This will have long-lasting aftermarket consequences.”
The following include some of the report’s findings:
Used Vehicle Market is Big and Profitable
The used auto market is bigger and more profitable for dealers than the new vehicle market.
Last year, approximately 41 million used cars and light trucks were sold in the U.S. (including sales by vehicle dealers, used dealers, and individuals). This amounts to more than one-seventh of the total number of vehicles in operation (VIO).
Bigger Used Vehicle Profits
With the rising price of used vehicles, the profits they offer are much higher, per unit, than they are for new cars and light trucks.
The profit margins of new cars and light trucks are shrinking (largely due to pricing information provided on the Internet), while used vehicle gross margins are growing. All this is encouraging many dealers to increase their footprint in the used vehicle market.
Salvation During New Vehicle Downturns
When new car and light truck sales dropped during the 2008 Great Recession, many dealers turned to used vehicles to stay afloat. Even during the lowest point of the recession (2009 new vehicles sales decreased by 40 percent), the used vehicle market remained relatively strong.
Used Vehicles Rescue Dealers during Covid-19
Used vehicles also helped dealers during last year’s downturn of the new car and light truck market.
Although new car and light truck 2020 volume fell by nearly 4 million, the used vehicle market remained strong, and dealers were able to offset much of their lost new vehicle sales profits with used vehicle volume.
Used Autos Help Build Dealer Bay Volume
Used vehicle sales can provide dealer bays with much needed business, replacing lost bay volume caused by fewer vehicles on U.S. roads 5 years and younger, which have been the traditional mainstay of dealer bay volume.
Many new dealers are bundling service contracts with used vehicle sales. Dealers are able to develop greater and more immediate bay business with used vehicle buyers than they can with new vehicle customers, because used vehicles require more maintenance per mile than new vehicles during the first three years after the sale.
Win, Win, Win Situation
With new dealers capturing only a fraction of the used vehicle market nationwide, there is much room for them to significantly expand their used market presence and benefit in three ways: additional vehicle unit sales, more gross margin per used sale than what new vehicles provide, and increased service bay traffic.
Used Car Superstores
Large used vehicle dealers are seeking the opportunity to develop repair business with their customers. In order to build their bay traffic, CarMax, Byrider, and other large used car operations are bundling vehicle service contracts with the sale of used cars and light trucks.
Increased Sweet-Spot Repair Competition
Many used vehicles sold by vehicle dealers are in the repair-age sweet-spot (6 to 10 years old) or will enter it within a short time (particularly vehicles coming off lease).
Dealers increasingly are competing head-on with independent (non-dealer) outlets for the sweet-spot repair business. Vehicles in the sweet-spot years produce above-average repair volume per mile driven for 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 sold.
The reconditioning of used vehicles and the service bay business that they can generate in the future provide an opportunity for independent outlets to increase parts sales to dealers, since many used vehicles handled by dealers are different nameplates than what they sell new.
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