Dealers are seeing used vehicles sales rebound after a significant drop in March and April. As demand has picked up, inventories have shrunk, and prices have risen. The dilemma for most dealers is trying to obtain units at a reasonable cost. It is estimated that 45% of a dealer’s used inventory is obtained via trade in, so it is directly impacted by the sale of new units. The prices at auction have also increased due to the demand.
Used Unit Sales
- Over 81% of dealer clients saw the number of retail units sold decline when comparing September 30, 2020 to September 30, 2019. On average they sold 72 fewer vehicles year over year.
- The average sales price increased by 2.9%. For 2019 the average sale price increase from 2018 was 1.7%.
Profits
- 98% of dealers reported an increase in their gross profit margin, significantly up from 35% in 2019.
- On average, 2020 used gross margins came in at 6.4% compared to 5.7% in 2019 – a .7% increase.
Retail Used Vehicle Profitability per Unit
| 2020 | 2019 | Increase | |
| Gross Profit/Vehicle | $1,414 | $1,215 | $199 |
| F&I Income/Vehicle | $1,181 | $1,124 | $57 |
| Combined/Vehicle | $2,595 | $2,339 | $256 |
The results above highlight the changes in the market for 2020. The demand for used vehicles is increasing as consumers shy away from mass transportation and look for a cheaper alternative to new vehicles. However, there has not been a commensurate increase in supply to satisfy demand. On one hand, this is good news to dealers as they have been able to hold prices steady and generate more gross profit. On the other hand, the lack of supply means that dealers are paying higher prices (either via trade or at auctions) to acquire used units. Dealers need to exercise caution as they build up used inventory. It is only a matter of time before the demand bubble bursts, which will cause prices to drop. A dealer does not want to be caught holding inventory that it cannot sell and ultimately taking a loss on the vehicle because they bought at too high a price. Managing inventory levels and monitoring vehicle aging are extremely important during this period.
If you have any questions regarding this article, please contact Paul McGovern at PMcGovern@DowneyCoCPA.com or at 800-849-6022.
