Dealers are currently navigating through a state of high demand for used vehicles and what it means to the franchise owners. This recent inventory shortage is driven by a number of factors including the chips that have been delayed, other parts and materials that aren’t being produced or delivered, diminished workforce due to illness, shutdowns, and an interruption of supply chain internationally. Today we consistently see multiple ads promising consumers the highest price for used cars. As a result, franchise stores are investing in older, used, high-mileage inventory, and they are also retaining vehicles taken on trade which would have previously gone to auction.

Back at the Dealership

None of these circumstances have diminished the overhead, payroll, and ancillary costs for dealerships – all dealers need to sell cars to stay in business. New franchised stores are turning to selling used vehicles more often than ever before. The outcome is causing dealers to move into sales of higher mileage bands, selling a category of vehicles they haven’t necessarily sold before, and they just don’t have the right products for it. The unforeseen problem is dealers are leaving money on the table because they just don’t have the ancillary products to cover all of these vehicles which are well beyond the eligibility of the manufacturers’ programs. Also, these products don’t typically fit into their reinsurance model.

Dealers who never required these products before now need to learn about high mileage F&I solutions. The majority of franchise dealers are more familiar with OEM, reinsurance, and high-mileage solutions that max out at 100K-120K. Today dealers need eligible products to apply and capture F&I profits at much higher bands, well over 125K and as high as 200K. Franchise stores are learning there are profits and money to be made, and products to be sold, on vehicles with extraordinary high mileage. The primary products with high value for consumers and dealers are vehicle service contracts, tire and wheel, key, appearance protection, and paint-less dent repair (PDR).

The Real Benefits

Understanding and selling good quality high mileage service contracts doesn’t have to be an intimidating prospect. Product is available that provides solid coverage at competitive rates, protecting the customer’s pocket and the dealer’s reputation while creating a valuable profit center during this shift to high mileage inventory. Dealers may not know who to partner with though. If it’s new to you, who is going to give you a valuable and reputable product? Who can you trust?

The things to look out for include a partner with enough experience to know how to rate appropriately and has good coverage at competitive prices that won’t put the program upside-down. They also need a company that can source the parts (another challenge in the high-mileage space), because they need to have suppliers who can guarantee older parts.

There are real benefits in retaining used vehicles and developing a profit center around them. The profit margins on used versus new are often substantially more, so there is less reliance on F&I to solidify profits. Alignment with reputable, high mileage providers will help increase the margins further on these sales. You need a provider that goes well beyond the 120K, or you will be missing the opportunity for profit.

About Reinsurance

With regard to reinsurance, if a dealer has his own VSC/warranty they will undoubtedly want safe vehicles for their reinsurance programs. They want a vehicle that doesn’t anticipate high loss, where parts can be easily sourced, and vehicles which are rated properly. They need competitive products that afford both the customer and the dealer protection. Unfortunately, in some cases, dealers are not selling high-mileage vehicle service contracts and are not protecting their customer or the dealership’s reputation. Extended warranties and vehicle service contracts offered by dealers can provide a considerable amount of reliable coverage for consumers. It’s far better to keep customers happy, and a used vehicle customer will want and appreciate the peace of mind of extended coverage.

While true high-mileage programs are not typically reinsurable, look for that to become more commonplace in the near future.

Guaranteed Lift to PVR

An accumulation and analysis of over twenty-three years of data has verified that selling high mileage products is a guaranteed lift to PVR. Every sale is a profit to the dealership and peace of mind for customers. Even with a third-party ancillary product (not a dealer’s own reinsurance and not the factory warranty) about 85% of customers will go back to their dealer (even off brand) for service, driving more service work to the dealership and not to a local garage or mechanic. These products promote customer loyalty.

Most dealerships today have already moved into a higher mileage band than they sold previously, but the majority are having difficulty finding these quality ancillary products. If you only have coverage up to 120K, you are missing out on significant profits by not partnering up with a true high mileage provider.

If you would like to learn more about used vehicle sales, contact Rick Tudor today on LinkedIn or by email at rick.tudor@carspp.com.