What has experience told franchise dealers about trade-ins that show up with 60,000, 70,000, 80,000 or more miles? Historically, the higher the odometer has ticked, the easier the decision was to wholesale a vehicle. But things change — especially in the automotive industry.
A recent IHS Automotive report found that new-car buyers are holding on to their cars for an average of six and a half years. At 12,000 miles per year, you’re looking at an average trade-in mileage of nearly 80,000. Many factors contribute to this. Cars are built better today and they last longer. Extended loan terms in the market have customers in these cars longer too.
So today, if a franchise dealer subscribes to the old-school mentality that a vehicle with that much tread should just be shined up and shipped off to auction, they could be missing out on a major profit opportunity.
However, a simple shift in perspective can help franchise dealers uncover a whole new profit center from this previously overlooked segment of inventory. If a dealer stops viewing these high-mileage trades as a problem and starts viewing them as an opportunity, the only question that remains is what do they have to lose?
Or better yet, what do they have to gain?
There are countless reasons why retailing such inventory presented obstacles in the past. But most of those obstacles have gone by the wayside. That list includes the breakdown risk, the clientele in the market for these vehicles, lending troubles and F&I hurdles, just to name a few. In today’s automotive world, there are solutions for the most common high-mileage trepidations agents and dealers have — and these solutions hold the key to unlocking untapped profit potential.
1. My Dealers Can’t Turn a Profit from High-Mileage Vehicles.
True, higher-mileage vehicles cost less, which raises the question of whether it’s even worth your dealers’ time. It sounds like an easy solution to clean it up, send it off to auction and move on. But take a step back and look at the big picture.
It’s no secret that margin compression on new vehicles is an ongoing battle that all franchise dealers must wage. So why not combat that with vehicles for which they have greater control over the margins?
And let’s not overlook the post-sale revenue opportunities. It goes without saying that higher-mileage vehicles, regardless of improved quality and reconditioning efforts, will likely require additional maintenance and service at some point. That’s revenue a dealer could have missed by wholesaling the vehicle. There’s also the added F&I opportunity. Vehicle service contracts (VSCs) can be big moneymakers on used cars, as can additional F&I opportunities like maintenance plans, tire and wheel, dent and ding, GAP and more.
Going back to that big picture, by hanging on to a vehicle that would have previously been sent to auction, a dealer can now add up higher profits per unit because of margin control, post-sale service revenue and added F&I profit — all sources of income that don’t exist when wholesaling a trade.
2. You Can’t Put a Quality VSC on a High-Mileage Vehicle.
Hold that thought. If you’ve had trouble finding a VSC for high-mileage inventory, you haven’t looked hard enough. A VSC provider who knows their stuff, has longevity in the space and is backed by a reputable insurance company will be able to predict how vehicles will perform, reserve properly and offer a product set capable of meeting high-mileage demands. When all this comes together, it results in a VSC offering that is both affordable and sustainable.
The second part of this equation is getting a customer to buy into the value of a VSC on a high-mileage vehicle. It is possible — and when done correctly, could be even easier than putting one a more lightly used vehicle. In most cases, customers in the market for a high-mileage vehicle are working on a tight budget. Tight budgets don’t jell with unexpected repair costs. Customers with such sensitive budgets need VSCs more than the average Joe. Protecting them from unexpected repair bills keeps their vehicles on the road while also protecting your dealers’ reputations and lender relationships.
3. My Dealers Can’t Put Their Lender Relationships at Risk with High-Mileage and Subprime Customers.
Again, this is where the VSC comes into play. By consistently presenting VSC options to these customers and asking lenders for the back-end advance, dealers are actually doing their lenders a favor.
What’s one of the top reasons that drivers default? Plain and simple, it’s when repairs on the vehicle prevent a customer from making their payments. A quality VSC that passes the test we outlined earlier takes all these fears away. If a breakdown occurs, the claim is paid, the driver avoids a budget disruption and the lender continues to get paid. If you think about it, experiences such as these can do the exact opposite of putting lender relationships at risk — they most likely will only strengthen them.
4. High-Mileage Vehicles Are Bad for CSI.
This is only true if dealers make it so. It’s also another reason a VSC is so important for high-mileage buyers. At the end of the day, these are used cars. They are inherently more likely to break down than a new vehicle, regardless of their improving quality and longevity. And this is why shifting the perspective of high-mileage inventory from a problem to an opportunity is so important.
When it comes to your dealers’ reputations, especially on the internet, the high-mileage or subprime buyer has the exact same voice and wields just as much influence as a new-car customer. Having the right approach to protecting these customers after purchase is just as important as it is with new-car buyers. The comments and reviews they leave online will impact future customers’ decisions to buy from a dealership, so their needs can’t be ignored. In fact, a consistently positive experience for high-mileage customers can go a long way toward improving your online reputation as well.
5. High-Mileage Vehicles Offer No Long-Term Business Opportunity for Franchise Dealers.
The best time to capture a customer is when they make their first car purchase. Sell a customer their first car, provide a great experience and they’ll come back to that dealership again and again. It’s an age-old philosophy applied to new-car purchasers, but the same can apply to subprime customers or those in the market for a higher-mileage vehicle.
These types of customers present a great opportunity to acquire their lifelong business at an earlier purchase. In many cases, these customers will improve their credit over time. This makes it absolutely vital that they receive an amazing experience before, during and after the sale. Today they might be buying a six-year-old vehicle with 80,000 miles. But in a few years, when they’re in the market again, they won’t soon forget the experience they had with their previous purchase. And best of all, they’ll return with better credit and a bigger budget.
The fears and worries that once existed for franchise dealers when deciding whether to retail or wholesale a high-mileage vehicle are no longer issues today. The old-school thinking of “shine it up and get it off to auction” should be put to bed. With a valuable VSC partner by your dealers’ sides, they can open up a new profit channel with high-mileage vehicles, sell more F&I products, protect your lender relationships, maintain strong CSI and establish long-term business opportunities.
So, are your dealers still thinking about wholesaling that six-and-a-half-year-old, 80,000-mile car?
If so, maybe they should think again.
