There is no hard and fast rule on profit margins for used cars but where as in days gone by (maybe 5-10 yrs ago) the margins were in the “metal” or “chassis”, a few things have gradually eroded this. The main culprit is the Internet, which is both the best and worst thing to have happened to the motor trade.
One of the best things is that there is no longer a need to take out expensive advertisements in local newspapers or embark on radio advertising campaigns to attract potential customers with no real measure of success, the price of which could well run into thousands annually.
Information regarding models and prices displayed on a car dealers website can be altered, removed and added to at the click of a mouse. All this means that there is potential for generating far more enquiries for a lot less outlay.
Selling used cars is an extremely competitive business and the hard thing for franchised dealers is that in the past their only competitors were other franchise dealers, nowadays independent dealers are now doing the same if not better job of presenting, pricing and preparing their cars for retail sale.
With the dealers website effectively being an online showroom an independent dealer doesn’t have to have the same facilities as a franchised dealer as long as they can offer a comparable service and pricing structure..
The worst thing about the Internet especially for a franchised dealer is that with information on any make or model readily available and easily accessible the customer can now educate themselves to an extent where they know exactly what they want before they even need to enter a showroom. This empowers them but also (and critically if they are clever) enables them to play one dealer off against another. I have experienced this scenario myself, where a customer will come in and take a test drive and even commit to do a deal only to then play you off a against another dealer 200 miles away for the sake of a few hundred pounds. However this does force the dealer to “sharpen his pencil” if he wants to complete the sale.
In ‘the good old days’ most enquiries via telephone would come as a result of the yellow pages, local adverts or word of mouth, meaning if a prospective customer asked whether you had a particular model, you could ascertain his budget and target a car for him. Before he arrived the advertised price hanger price could be replaced with another which was £500 higher! Once the customer came in did the test drive, loved the car and wanted to buy it, you could then allow them to negotiate you back down to the original price, this was a common practice and allowed dealers to make a good margin. This margin, typically for volume dealers could be £1,000-£1,500 per car and up to £5-£10,000 for the more up market vehicles.
Today the situation is somewhat different, indeed most volume franchises such as Ford, Vauxhall, Peugeot, VW etc would be happy to make £700 per unit, hence why they are always looking for ways of generating more profit opportunities via add ons such as finance, and insurance based products.
So the tips are:
1) Internet research could help you target the right car at the right price
2) There is now a lot of competition and a great deal of choice
3) Don’t be afraid to play dealers off against each other
4) Be prepared for the “up sell”, they will almost certainly let you have the deal on the car
provided they can sell you an add on!
5) Don’t be afraid to wait for the right car if you have a very specific requirement re colour, specification etc., the car will come along that suits your needs.
Finally be ready when they say the immortal line when looking at a used car;
”You really need to make a decision now as one of my colleagues has someone coming in tonight who will buy this car if you don’t”
This is a classic close, don’t buy it unless you are ready to!!!