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Trader Talk: Metrics take the guess work out

Time 9:00 am, March 22, 2013

270911-a-ssa-1THESE days the business of retailing used cars is complex.

Successful operations are those with a retail focus who understand the changes in consumer behaviour, have a strong online and mobile presence, use market data, consider the relevant metrics for success, take care when dealing with part exchange vehicles and regularly review sourcing and pricing strategies.

The used car market is not static. It is dynamic and constantly evolving to meet the challenges of this ever-changing market. Dealers need to think of themselves as retailers. They need to study local retail demand to understand which cars to buy and need to understand retail pricing to determine how much to pay for these cars.


Those who use the right market data in the right way will be able to identify what stock’s hot and what’s not, at any given point. The key performance indicators include metrics that track consumer demand, measure stock turn and identify the potential gross profit margin.

The biggest challenge facing used car dealers in today’s market is changing behaviour of consumers. The internet has empowered consumers by providing a wealth of market information and insight so they can undertake all the research they need to, before visiting a dealer. Consumers use online tools to search for cars and research shows that consumers are researching online much more than ever before.

They are searching for cars using not just PCs but increasingly also mobile devices, including tablets. Trust in the internet has improved and dealers say car buyers turn up at the dealerships with greater knowledge than ever before.

However few, if any, dealers have a data intelligence unit and the average stock turn of about seven times a year is not a great return on capital employed. By analysing demand trends and pricing, dealers have increased stock to 11 times a year. Much faster stock turn results in an ability and agility to respond to changes in consumer demand and retail price movements.


2012 was a challenging year for many dealers with the economic uncertainty and an ever changing used car market and the prospects for this year seem little better. So dealers need to do all they can to maximise their used car operations.

Success is usually measured by the traditional margin, stock turn and gross profit metrics but changes in consumer behaviour mean that new metrics also need to be introduced into the equation and the emerging metrics of desirability rating, cost to retail and price position are critical.

They will establish if a car is in demand in the local market, recommend the price at which the car should be bought to give a realistic margin and determine the optimum selling price.

These additional metrics will strengthen a used car operation by ensuring a dealer has the correct stock profile at the right price with a healthy margin which will increase stock turn, enhance the gross profit potential and take the guess-work out of used car retailing.

 

Tim Peake's avatar

Tim is group strategy director at Trader Media Group, publishers of Auto Trader, the UK's largest car marketplace.

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