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Developing The Right Preowned Sales Strategy To Enhance Profits

Current vehicle sales trends signal shifts in consumer preferences.

Recent headlines point to changes in consumer purchasing behavior. As Forbes reported in June,According to TransUnion, the growth in used-vehicle sales has outstripped nearly flat new-vehicle sales in the U.S. market the last three years in a row. Additionally, according to Experian, Customers with good to excellent credit accounted for well over half of used-car financing.

One thing, however, remains the same. People need to buy vehicles and they often want the latest and greatest technology. So, affordability is the one big challenge that dealerships face. The average price of new vehicles has risen to around $35,000Customers are having monthly payment shock,’ Mike Jackson, chairman of AutoNation, told the New York Times.

How A Preowned Strategy Helps Dealerships

Dealerships struggling to maintain profitability and increase vehicle sales can tackle this problem by developing the right pre-owned sales strategy. The benefits to a dealership start before the vehicle even hits the sales floor. The vehicle will likelyimpact every department in the dealership: the body shop, the parts department and the service drive, and bring in revenue.

Once the vehicle is sold to a consumer, the ancillary products included in the financing of the vehicle also generate income. It can also bring business back to the dealership service department via scheduled maintenance.

This strategy has worked in practice for a dealership in Kentucky, according to Automotive News. They had been selling about 75 pre-owned vehiclesa month. They shifted their mindset about pre-owned vehicles and the benefits they could reap from them and they now sell 175 preowned vehicles a month, and more importantly, they retain 80% of these customers in the service department. They’vebuilt a relationship with the customer and have a greater chance to see them again in their dealership.

Steps To Formulate A Preowned Strategy

One solution is to offer residual based financing (RBF-walk-away balloon loans and leases) options for preowned vehicles. Consumers can benefit from a lower monthly payment and shorter terms. Dealerships queue up a repeat customer at the end ofthe shorter RBF term, move more units, and experience the benefits of generating income pre- and post-sale on those units. Additionally, the ability to offer different financing options to meet the demand for lower payments can increase customer satisfactionand increase customer loyalty. These activities strengthen the relationship between the buyer and the dealership and the likelihood of repeat business when the customer is ready for a new or pre-owned vehicle.

The AFG Walk-Away Balloon and Leasing programs include pre-owned vehicles up to five model years old. Additionally, dealers enrolled in AFG’s RBF programs can use the tools the program makes available to them to further refine their preowned salesstrategy.

The first tool is AFG Pre-owned Vehicle Hot Sheet. The Hot Sheet identifies current vehicles where the residual value in relation to the sales price produce a low payment. Armed with this information dealerships can acquire vehicles that are in demandand deliver a competitive monthly payment.

The second tool AFG offers is called the Dealer Inventory Download (DID). The DID helps dealerships identify vehicles within their current inventory that perform best on the AFG programs. The DID consumes your dealership’s entire inventoryand presents a comparison between RBF monthly payments and conventional payments. The results can then be quickly ranked or sorted to allow your sales and F&I teams to quickly assess the best vehicles and payments for the customer.

This article is sponsored by a recognized solutions provider in the credit union industry. Callahan & Associates does not endorse vendors or the solutions they offer, and the views and opinions offered here might not reflect those of Callahan. If you are interested in contributing an article on CreditUnions.com, please contact the Callahan team at ads@creditunions.com or 1-800-446-7453.
November 4, 2019

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