5 Reasons Why Dealerships Are Finding The Real Money Is In Used Vehicles

Dealerships big and small increasingly have shifted their focus toward used vehicles — a side of the market that traditionally provides dealers more control and creative opportunities than the new-vehicle business.

And the shift en masse toward used vehicles also comes down to money. According to J.D. Power, dealers made an average gross profit of just $140 on a mass-market new car this year. But for used cars 5 years old or less, the profit was $950. And new trucks cleared $540 each, while used trucks 5 years old or less gave dealers a $1,200 per-vehicle profit.

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PUGPROUD - 12/30/2019 10:40:28 AM

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Curious Matt, does this mean new car buyers in a position to get better deals?

MDarringer - 12/30/2019 12:15:41 PM

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They in fact are.

As a dealer, we're free to sell used cars and the dealers in our group have quickly moved to repurposing vacant dealerships for "CarMax" style used dealers. So, in addition to say an Anytown Ford, we have some Anytown Ford Pre-Owned dealers. And we do this where the dealer has a good community reputation. We have been dogged in removing used cars off of the new dealer lot where historically they were an afterthought or where you fall to because you're too poor to buy a real car. That is the negative connotation of "used car lot". We use the term "pre-owned" and treat the customers at our pre-owned stores the same as we would if they were buying new. We have a showroom floor with vehicles on display.

We have a group name that we use when the dealer is hated and we take it over because we're re-establishing it. But if we buy a well-loved mom-and-pops operation, a stipulation of the sale is that we keep the name. Either way, we used a positive name to bless an approve the used car lot.

So, we take lease returns and our courtesy cars in good condition, detail them, CPO them and put them on the lot along with good, late-model used cars we've taken in. We typically have a mix of pickups and crossovers too, but 5 years old is getting a bit ancient.

Consequently, when the manufacturer sees us doing great business on used they know they have to sweeten the deal on new.

ONCE AGAIN, the invoice that you see online that the apps tell you are real are not real. Manufacturers inflate the invoice and then give the dealer a "bonus" for each sale. Thus the real invoice is significantly lower than what the app says.

On top of that, there is always secret incentive money. Thus, when a rebate happens, the manufacturer is often shifting the dealer bonus to the customer and giving us a little bit for the pain.

SuperCarEnthusiast - 12/30/2019 12:02:26 PM

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Most of the profits are in the service end of cars.

MDarringer - 12/30/2019 12:18:22 PM

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Debatable. Our two biggest profit centers are service and pre-owned with pre-owned ahead by roughly 10% across the group.

Foncool - 12/30/2019 4:47:21 PM

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Pre-Owned has always been more profitable than new cars.

MDarringer - 12/30/2019 5:11:59 PM

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Debatable. It depends on what the bonuses to dealers are that don't show up on the invoice.

Runamukk - 12/30/2019 10:16:46 PM

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Our gross profit per unit average is higher on new than pre-owned at our Mercedes dealer.

MDarringer - 12/31/2019 11:24:28 AM

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For premium dealers that is often true and as it should be.

skytop - 12/30/2019 11:15:59 PM

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Dealers have known the real money was in buying (stealing) trade in car and selling them on their used car lot.

MDarringer - 12/31/2019 11:25:32 AM

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Yes because every trade in that arrives is a gem. What utter stupidity.