The Definition of Successful Used Car Retailing!

As the focus for many (quite understandably) is very much on developing used car retailing at the moment, I thought it might be useful to strip the discussion for this article down to basics, when it comes to successful and profitable used car retailing and what that actually means.

If only because I am having this discussion a lot at the moment and finding that many are either unaware or over thinking what the definition of successful and profitable used car retailing involves; so please see the above and the below.

Taking a large sum of your/someone else’s money, investing it in a volatile (in terms of future value) asset type (used cars) and then preparing, retailing and getting paid for that asset within a very small profitable investment window of opportunity; 45 days!

Now, this is not to say that an owner of a business can’t make a decision to look at financial outcomes differently (it’s their money), or that in successful delivery, the process of achieving/adhering to the above is not both highly nuanced (in terms of market forces) and operationally complex; because it is.

But we have start somewhere and then build on that understanding, because as much as the challenges being faced by all used car businesses are very challenging (albeit nuanced and determined by the used car markets you are trading in), the fiscal rules aligned to the utilisation of funds employed to used car stock holdings (for retailers) haven’t changed.

That after 45 days in stock (and despite all the stories you may tell yourself), no used car is profitable any longer; you are at that point (at best) breaking even or (at worst) losing money; no exceptions. So an easy test for the utilisation of the funds employed to the used car stock holding (for any business owner), is to look at their rate of stock turn. Over 45 day per unit (8 times per annum) and you are not profitable; overall.

Now I say this, not to further explore this complex fiscal argument (that is not the subject for discussion today), but to sow a seed with those reading this article; most of whom may well be nowhere near the 45 days required to be profitable and/or know how to enhance their rate of stock turn to this aspirational and required level.

And to top it all, meeting this challenge is not going to be getting easier anytime soon because in the used car markets of today, successful execution throws up some difficult questions and trading challenges; some that business owners may have not had to come face to face with before. The first being the pace of market evolution when it comes to used car stock profile(s).

Regardless of what you think (ideologically) about the policy, the Zero Emissions Mandate has resulted in the new car market being forced down a route of selling a certain mix of new car propulsion models during the next decade. However there is no guarantee that some of these cars (especially BEV’s) will be the used cars in demand in future used car markets and/or by used car customers; and this will likely lead to the successful used car business becoming less aligned with (and supportive of), the new car business. Especially those new and used car businesses trading in premium, specialist and high performance markets.

And herein lies a challenge; the running of two very different used car businesses. It is my prediction that in these premium, specialist and high performance used car markets, every used car businesses will effectively be made up of two very different used car businesses. One of the used car businesses will be acquiring and retailing used car stock in high demand. Depending on geography, this will (more than likely) consist of petrol and diesel models, the cars customers understand and can’t replace any longer from the new car production model line up; but those cars that constitute a rapidly decreasing used car vehicle park, in terms of acquisition opportunity.

The second used car business will be supporting and retailing BEV’s and other new propulsion models; PHEV’s etc. This business will need to be run completely differently, depending on the demand for these vehicles; either way the acquisitions model, how this is presented to customers and in successful execution, will be completely different (in terms of an operational Modus Operandi) to the other (more traditional) used car business. All of which leads me nicely on to the next major challenge; securing access to the used car stock acquisition and business development expertise that is going to be required.

To explore this fact (and the associated challenges) let me divulge the nature of a discussion (including some of the points covered) that I shared with a business owner recently. To do so let’s imagine that the individual involved owned franchised dealer businesses operating in the aforementioned new and used car markets, was looking to grow their used car retailing operations and in a way that meant (fiscally) they were profitable.

I started the discussion by explaining that the successful used car acquisitions and business development professional(s) operating at the very top of their game (just like any other successful professional), will (and should) be laser focused on the achievement of the stated commercial aims. However that would dictate that the nature of the discussions required in the achievement of the commercial aims, could challenge their current thinking.

In the recent past used car operations at franchised dealers have tended to mirror (therefore support) new car model ranges. This I predict will have to change (in the immediate short and medium term) for any used car operation looking to grow profitability, by taking advantage of the genuine opportunities that exist in used car markets.

The successful used car professional will take the volume and profit objectives and look to achieve that by acquiring and retailing used car stock holdings in demand. This is where the first difficult discussion will take place, because this stock holding might not include used versions of the new car model range; BEV’s being an obvious case in point.

Now this may cause conflict within the business and with the parent manufacturer, but the owner must decide what the objective is; a successful used car business or one hampered by having to support the new car business, and by attempting to retail used car stock holdings not in demand. Choose the latter and you can wave goodbye to any chance of attracting the used car expertise and professionals required to succeed in the used car markets currently forming.

Now (depending on geography) this might not be the case and/or could change over time, as used car markets evolve and the consumers purchasing ambitions change, but being agile within used car markets will be pivotal to immediate success. And in being agile, I mean the ability (as a business) to read demand in the individual used car markets the business is associated with (in terms of the product range), and in terms of building the “End – to –End” trading solution required to operate successfully within new and emerging used car markets. Both retail and trade; not auctions.

To succeed here will (in all likelihood) require a completely different team of professionals from those currently likely to be in situ. No business can expect to plan for successful used car retailing in the future by combining roles between new and used car retailing; and this leads me on to another potential flaw in the trading models of many. The over reliance on technology and the recent lack of investment (over the last decade) in used car professionals.

There has been a morbidly interesting move towards dispensing with professionals and investing in technology over the last 5 years, and it has left those businesses relying completely on technology for acquisitions and sales with a “One Trick Pony” used car business; now relying totally on price to attract both used car stock and customers.

What has surprised me though is the amount of businesses following this route; looking to channel enquiries into the hands of polo shirt wearing “Product Geniuses” looking to be “Liked” and craving their next 5 star review. Rather than investing in experienced consultative selling sales professionals, looking to be “Trusted” and who know how build obligation and trust with customers purchasing and disposing of cars in these markets.

All this aside though, the current evolution in used car markets coinciding with evolving customer purchasing behaviours, does mean that there are once in a generation opportunities within used car markets during the next 1 – 3 years. That said many businesses are vulnerable, lacking in real expertise at the top and are never likely to be agile enough, in terms of their trading and operational structures, to take advantage.

In many ways it will be easier to succeed by starting with a “Blank Sheet of Paper” than it will by restructuring the wrong business model for the changing times; those involving evolving, new and more profitable used car markets.

So who will be able to take advantage of the opportunities that currently exist; as the cosy cabal that had formed in automotive markets over the last decade comes under pressure, even existential threat? Well I don’t know but I suspect that to take advantage will take visionary thinking and a willingness to observe the masses and do the opposite.

The one thing I also know is that at the foundations of any future success will be the ability to build the team required for this success; and this will require a very different mind-set and approach from the one much of the industry has worked under in the recent past. At the very foundations of which will be the professionals required and the ability to secure access to and/or build mutually beneficial commercial strategic alliances with these individuals.

To any business owner also sensing the opportunity that currently exists in premium, specialist and high performance used car markets I would say this; I doubt anyone can succeed on their own. It will take a premium franchise business, a dedicated team and access to the used car business development and used car stock acquisition expertise required.

I can supply the latter; anyone in possession of the former and wanting to explore synergies and the potential to collaborate, can feel free to reach out and contact me directly.