Used-Car Sales
Take Pole Position

Consumer demand and the focus of the auto retailing industry is shifting to used cars, with new car sales expected to decline.

To be ready, improvements to the customer experience and to the retail process are a must for all types of used-car retailers — franchised new-car dealers, independent used-car dealers, and buy-here, pay-here (BHPH) dealers.

This includes customer-facing improvements for convenience, transparency and speed, operational improvements, for efficiency, compliance, and performance metrics.

Experts say customers are in the driver’s seat more than ever. Consumers have higher expectations, and thanks to Internet shopping across all consumer retail, purchases are available with one click. The retail auto industry is playing catch-up, especially when it comes to used- vehicle sales.

Challenge 1: Great Expectations

Across the industry, there’s an ongoing effort to continue to evolve the used-car business.

In a world where the consumer can track most online purchases from beginning to end, the need is growing to conveniently find, finance, order, and deliver a car online in the same way. Automotive retail software companies are beginning to provide more and more tools directed at digital retailing in order to compete.

Dealerships must speed up the selling process online and in stores. More functionality needs to be available online, including up-to-date dealer inventories with lots of photos, access to financing and add-on products, as well as information on trade-ins.

The internet is also making it harder to conduct business the old-fashioned way by bringing more pricing transparency to used cars, the same way new-car pricing transparency impacted new-car pricing and margins. Customers can easily find comps online for used vehicles in their market, leading to a need for greater transparency from dealerships.


Challenge 2: Closely Watched

Dealerships in all segments — franchised, independent, and BHPH — also face a high degree of regulation.

The Consumer Financial Protection Bureau, for instance, had auto financing on the back burner following the 2016 elections. But attorneys general in several big states reacted by stepping in where the CFPB backed off.

Since the 2018 midterm elections, the U.S. Congress is prodding the CFPB to get back to a more active role in auto financing enforcement, especially the House Financial Services Committee.

Challenge 3: Falling Tide

Used-car retailers need to up their game in terms of customer relationship management, online marketing, compliance, and dealership workflow.

Since auto sales are expected to contract, margins are being squeezed and competition among dealerships is scrappier than ever.

Interest rates are higher, making financing more expensive for customers, and for dealerships. For now, it’s a relief that the Federal Reserve has put interest-rate hikes on hold.


Stop Throttling Your DMS

Like using a high-powered sports car to only go to the corner store for groceries, many Dealer Management Systems (DMS) are not being fully utilized to maximize sales and profits. Dealerships can gain greater efficiency, increased automation, enhanced compliance support, advanced reporting, and an improved customer experience by taking full advantage of their DMS’s functionality.

More Bang for the Buck

Faced with continued margin pressure and the likelihood of lower sales volumes, dealerships must produce more bang for fewer bucks.

A common way to tackle increasing costs is to make marketing and advertising more cost-effective. Dealerships are using software to develop finely targeted campaigns using a wider variety of media, including emails and social-media campaigns, backed up by performance metrics.

Used-car marketers also need to grow other profit centers besides the retail sale, as new-car dealerships have done in the past in response to lower new-car sales. For used cars, “other” profit centers include F&I, parts and service, and aftermarket accessories.

Make or Break

Inventory management is another potential make-or-break area for used vehicles. Paying too much or buying the wrong sorts of units for the market — for example, stocking too many cars, when consumers want trucks, or vice versa — can make it impossible to charge enough or turn enough inventory fast enough to make a profit.

For the entire industry, the used-vehicle population hasn’t caught up yet to the recent, sudden acceleration of a long-term consumer trend toward light trucks and away from cars. As a result, used inventory is car-heavy compared with today’s consumer preferences for SUVs, pickups and crossovers. The Detroit 3 automakers are addressing this trend by phasing out most new-car production, but the effects won’t be fully felt in the used-car population for years.


Thinking of Moving to a New DMS?

The right DMS can net dealerships tremendous efficiencies, help support compliance requirements, and increase both the top and bottom line. But moving to a new DMS is not a simple flip of a switch. A change management plan is required to avoid operational disruptions.

The Blended Effect

Meanwhile, margin pressure is forcing the three traditionally distinct business segments in used cars and trucks to encroach on each other’s turf.

Franchised, new-vehicle dealerships that also sell used cars are more deeply involved than ever in retailing used cars and trucks, to make up for the slowdown in new-vehicle sales. This has franchised dealers competing more directly with independent dealers for customers with subprime credit.

Some new-vehicle dealership chains also compete with independent and some BHPH dealerships for older, more affordable, used-car inventory. Some of the bigger chains have even started used car-only locations.

“Larger BHPH groups are often less likely to go with a blended model, as they have streamlined their operations to be as efficient as possible. They will be dialed into a narrow customer segment and will be able to make their lending and collection practices work best for the needs of that customer group.”

– Jeff McCurry, VP of Product Management at DealerSocket.

Branching Out

Competing more directly with franchised dealers means independent dealers and BHPH operations must step up their game, to offer a customer experience that’s more in line with a new-car franchise.

Responses include upgrades to dealership websites, customer relationship lifecycle marketing, and other customer touchpoints.

In addition, besides the traditional, indirect auto finance channel, some independent dealerships are exploring originating and servicing their own loans, essentially starting their own BHPH operation.

Officials with J.D. Byrider, a BHPH franchise company, recently said about half of its independently owned BHPH franchises are owned by dealers who also own franchised, new-vehicle dealerships.

New business models are likely to continue to emerge for used-car dealers, such as providing services like the nascent OEM subscription services that bundle ownership expenses into one charge and offers users the flexibility to swap vehicles.

Some used–car dealer groups are reacting to the changing landscape by extending their dealership models across the spectrum to offer a variety of ancillary services. Some used-car dealer groups are also building integrated operational teams and centralizing back-office functions to reduce costs and provide their own funding and other complementary services. The goal behind many of these efforts is to own the relationship with customers for as long as they can.

New Finance Models

As the industry evolves, dealerships may also need to sign up with more finance sources, while cultivating stronger relationships with the ones they already use.

That’s prudent in any case, since some finance sources, especially banks, have a reputation for dropping risky credit tiers, cutting back geographically or even getting out of auto entirely, in response to downturns in auto sales and increases in delinquencies and bad loans.

Dealers exploring blended ownership may also take on new requirements. For example, an independent dealership that never performed its own collections might need software aimed at organizing and facilitating collections. Dealers may also need greater access to credit for their own expansion plans.


A Collectors Wishlist, 4 DMS Must-Haves

  • Customizable User Roles: Getting new team members up to speed on collections processes and the technology that drives them takes time. That’s why the ability to customize user roles is critically important.
  • Intuitive, User-friendly Interface: Streamlined system interfaces for collectors and others saves time and money. Complicated interfaces often result in less utilization of system and more “off-book” notes and tracking, leading to inefficiencies and errors.
  • Queues and Automated Workflows: Automating how different categories of accounts are managed allows collections teams to reclaim hours in their day, freeing them to focus more time on challenging accounts.
  • Diverse Payment Options: Collect more payments consistently when customers can pay via channels that best suit their needs, including online, by phone through a 24/7 interactive voice response system, via text message, through a mobile app, and more.