Used-vehicle sales offer franchised dealers a bright spot in a market of falling total sales and eroding profits, J.D. Power’s chief data analyst told a retail audience Thursday.
Used-vehicle sales at new-car dealerships have been steadily growing for five years, and the sales are helping dealers shore up store profits with bigger gross margins, said Thomas King, senior vice president of Power’s data and analytics division.
“There is a significant opportunity in used,” King said at the J.D. Power Automotive Summit here.
In 2014, franchised new-car dealers sold 10.4 million used vehicles. That total has increased in each of the past five years, reaching 12.2 million in 2018.
But the real story is in the segment’s profit potential, King said.
He noted that gross margins in the used-vehicle trade eroded in every one of those years, just as gross profits eroded on the new-vehicle side of the dealership. But King said the difference between the two channels is remarkable.
New-vehicle gross profit fell from $667 per vehicle on average in 2014 to $417 per vehicle in 2018.
But gross per used vehicle fell from $1,471 in 2014 to $1,300 last year — still representing three times the profit potential per vehicle of franchised dealers’ new-vehicle stock.
The opportunity could be of particular interest in 2019 as the market faces the continuing pressure of falling new-vehicle sales. J.D. Power forecasts that U.S. new light-vehicle sales will slide to 17.0 million this year, a decline of about 300,000 units.
But King warned that the anticipated decline will come almost entirely from the retail side. Fleet sales will remain flat for the year, according to Power’s expectation.
That means dealers will be competing for an even smaller pool of new-vehicle sales this year.
He also pointed out that the most price-sensitive part of the market — vehicles with stickers under $20,000 — experienced sharp pricing pressure last year.
That is often a segment in which shoppers could go either way on new or used.
Pricing in that segment fell 19 percent last year, according to King. By comparison, pricing in the $20,000 to $30,000 range declined only 1 percent, he said, and $30,000 to $40,000 segment pricing declined a half of 1 percent. e