Car dealers need to target increased used car profitability

Car dealers need to take a structured approach to increasing profitability for every used car they sell as stock shortages start to hit the number of vehicles being sold, says RAC Warranty.

The company says that scarcity of used car stock is already hitting volumes of sales and that dealers need to compensate by looking at ways of increasing yield – especially point of sale items ranging from warranties to GAP insurance.

Ian Simpson, sales and marketing director at RAC Warranty, said: “Dealers are going to find it more and more difficult in the next few months to find the stock they want to sell at the price they want to pay, which will unavoidably have an impact on the windscreen price.

“All of this means that dealers will almost inevitably sell fewer cars in the medium term until stock levels start to recover, although the extent of the problem is difficult to predict, as is the point in time at which stock levels will start to recover.

“To offset lower volumes, dealers need to be looking at ways at increasing profitability for every car they sell and this will mean ensuring that they have a properly structured sales process in place that takes the customer through each element of the used car sale.”

Simpson explained that dealers needed to ensure that they were able to offer point of sale products ranging from warranties to paint protection in a manner that underlined their advantages and emphasised the value-for-money which they offered.

He said: “Certainly, our experience during the recession is that customers have become more receptive to products that provide a large degree peace of mind, something that has seen our warranty sales rise by about a fifth in the last 12 months.

“But in order to maximise these sales opportunities, dealer managers need to ensure that their sales staff are trained to sell products to used car customers and have access to the right sales material as well as being properly incentivised.”

Simpson added that, as far as warranty sales were concerned, dealers who employed a structured methodology to sales saw an average 15-25 per cent uplift in sales compared to those who had a more haphazard approach.

He said: ““Where warranty sales are not reaching their potential, it is usually because there is a lack of commitment on the part of dealer management and a lack of understanding on the part of sales staff. This is something that dealers may not be able to afford to indulge in the coming months as stock shortages start to take effect.”