Does it really matter that the average price of used cars is on the rise? Let’s be honestâ€¦.the truth is that vehicle prices go up every single year. But, when was the last time we saw them drop and not come back?
It appears that 2021 will go down as the time we saw several years’ worth of price increases in 12 months. New car manufacturers are not naive to the prices dealers are getting for both new and used cars. As a result, they have hopped on the bandwagon of price increases. According to Cox Automotive, new car prices are up 39% since 2012. They then rose another 8% between 2020 and 2021. On top of that, the average price of a new car in 2021 was $43,108.
Let that sink in.
My advice to dealers is to be sure you are fixing your roof while the sun is out. By this, I mean that now is the time to prepare for change. Dealers have enjoyed a long and very profitable run in the used car market. This success in many cases came with little effort. I watched average to below-average used car departments post record years with profit and volume. As 2021 drew to a close, we saw volume slow, but dealers were stubborn and continued to get the gross they enjoyed all year.
As prices begin to normalize and the consumer adjusts, the process to discipline dealers created in the mid-20-teens will be as important as ever before. The basics never go out of style.
Here are some tips to be sure your team is doing everything they can to handle the increased pricing, and continue to enjoy both the volume and gross you’ve become accustomed to.
- It will be more important than ever to highlight the high-value packages and equipment your vehicles have over the competition. As new car production ramps up in 2022 and beyond, we will likely see more cars with less equipment than we have seen in the past. Why this car is better than the others will be more important than ever.
- Continue to fine-tune your customer acquisition strategy. It goes without saying how important this is. Be ready to buy every car from every customer wherever they want to sell it to you. (more to come)
- Focus your acquisitions strategy on high content cars. Units with low miles and lots of equipment will command the highest prices for both wholesale and retail. On top of that, they will likely sell the fastest and bring more gross.
- Consider moving higher than average unit cost, late model, high mileage purchase units faster. This inventory can and should be used as “trade bait”. Trades will bring a higher ROI and lower your overall inventory cost. It’s likely with these units your first chance at gross is your best chance at gross. Get a trade and move on.
Used car departments are resilient. We’ve seen adversity before and now, like then, I’m confident that this sudden rise in inventory price is something the industry will overcome. I mean, do we really have a choice anyway? It doesn’t look like it. In any regard, I love working with dealers to improve their used car operations. There is a lot that we can do together. If you are feeling the squeeze, feel free to call, text, or email me anytime. I mean that. I am here for you.