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3 Keys to Maximizing Used Car Profit

Work smarter, not harder has become a well-known business axiom. But defining ‘smarter’ is often based on the industry and when it comes to selling cars, working smarter means working faster.

Once you buy a car, no matter what the price, the clock starts ticking. And with each passing moment, the potential profit on that car diminishes. A car you buy because it’s a great deal will only prove to be a good deal if you can get it sold quickly.

The key to a quick turn-around lies in marketing more effectively and reducing the time a car is processed and put on the lot.

The first piece of that is simple enough – reduce the amount of time spend reconditioning the vehicle. Be willing to jump on a good deal that needs some TLC, but understand the amount of time you’ll need to get it into shape and factor that into the car’s true cost.

Pricing should also be reviewed regularly.

Jasen Rice, founder of the virtual management consultancy LotPop, reports that dealers who have their inventory flow down pat “enjoy a three-to-seven day turnaround time, have competitively and market priced inventory out the gate … while adjusting pricing every two weeks to get units sold.”

Revisiting pricing that often keeps you aware of exactly what’s happening in terms of sales and price fluctuations will create more interest in your lot with the public.

At the same time, you want to keep volume and turnover up. After all, if you’re aiming to have less than a 30-day turn around on at least half your inventory (as Dale Pollak, founder of vAuto, recommends) then you need to have a steady stream of cars that fit the bill. The best – and perhaps only – way to do that is to increase the overall number of cars you’re buying.

I can already hear you objecting – the more you buy, the more likely you’ll get stuck with something that falls short. And you’d be right if you didn't have an effective used car marketing strategy to move the cars off the lot. But that doesn’t necessarily have to equal lower gross profits. Just ask the Sam Swope Auto Group*. They promise to buy just about any car from people who just show up at their dealership as well as those who book an appointment through their website. Staff members from the dealership will even scout out cars selling in parking lots during their off hours.

With so many channels for cars to come in from, you’d think they’d be stuck with tons of cars they simply can’t move. But that’s not the case. Instead, the dealership was one of only 13 dealerships that boasted used-vehicle sales that outpaced new-vehicle sales in 2014.

Their secret?

The company adheres to a quick turn-around time in reconditioning and they’re also willing to take a few hits. Essentially, they play with an eye on the big picture.

“We play the averages,” Cary Donovan, vice president of operations, explains, “If you get ten $200 cars, you’ll get a few winners out of the bunch, and some will flat surprise you.”

So, if you're looking to maximize the profit potential of your used car business, there are three keys to consider: acquiring a lot of the right vehicles is one key, moving them quickly is another, and taking a loss to move them without delay is a third key.

3 Keys to Maximizing Used Car Profit

  1. Acquire as many of the right vehicles you know you can turn quickly
  2. Turn your acquired vehicles within 30 days
  3. Be willing to take a loss on vehicles aged more than 30 days