Part three of our series on the annual trends and analysis for auto dealers will focus on used vehicle sales. Our results are for retail used vehicle sales only and are compiled from our client dealer financial statements for the first nine months of 2015.
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With all the media attention on new vehicle sales, dealers are aware that used vehicle sales are equally as important to their business success. For our clients, nearly 40% of the units sold year to date were used vehicles.
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Unit Sales
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While new vehicles had significant increases in year over year unit sales, used vehicle sales were not as robust. While 58% of our dealers reported a growth in used unit sales compared to the prior year, the average increase was only 19 units. On the bright side, the average sales price rose by $210 per unit.
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Gross Profits
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As far as straight gross profit per vehicle goes, dealers averaged $1,712 per unit for the current year, which was a $22 drop from the $1,734 per unit generated for the same period a year ago. While this may not seem significant, it again confirms what we are hearing from our dealers. The cost of used inventory has remained high and dealers are forced to compete for units. This puts the pressure on margins and is the main reason for the decrease in gross profits.
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Finance and Insurance Income
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Similar to new unit sales, F&I income generates a significant amount of profit for the dealer. F&I income has remained relatively flat for used units. For the current period, dealers were able to earn $928 compared to $919 for the same time frame in the prior year. The minimal increase is in contrast to the sizable increase in F&I income that new units experienced. However, the average F&I income on a per unit basis generated by used units still outpaces that earned on new units.
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Overall
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The decline in gross profit per unit was somewhat offset by the increase in F&I income on a per unit basis. In total, dealers averaged $2,640 per unit for the current period compared to $2,653 the same period last year. This slight decline illustrates that dealers are unable to replicate the success in used that occurred with new.
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A strong economy coupled with low interest rates and high used vehicle values have turned what would have been used vehicle buyers into new vehicle buyers. In some instances, the cost differential is nominal, especially when being financed over a period of time. With used vehicle sales tending to be more profitable than new vehicle sales, dealers need to continually assess their used vehicle department. They need to buy wisely and monitor aging and margins to ensure that the department is running to its maximum efficiency.
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For your convenience, the first two articles in the series are here for reference, 2015 Dealership Trends & Analysis and 2015 Dealership Trends & Analysis – New Vehicle Sales.
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If you have any questions regarding these articles, please contact Charlie Paolino at 800-849-3100 or CPaolino@DowneyCoCPA.com.
