Used Car Prices Dropped in 2016. Are you Equipped to Handle the Pricing and Profit Pressure?

January 31st, 2017 by

As MAXDigital customers know, we have been warning about a shift in the industry since late 2015. Now it’s been confirmed. This month, J.D. Power reported that after years of climbing used-car prices, they’ve fallen into what analysts are calling “the first material decline we've seen since the recession." Read more about what we expect to happen next, and how dealers can overcome continued pricing and profit pressure.

Over the past year, used-car prices have declined about 4 percent on average compared with 2015. Not just in one or two categories: J.D. Power’s Used Car Guide found that 14 out of 16 categories were affected.
How did we know it was coming? At the onset of the recession in 2008, consumers were holding onto their cars when they ordinarily would have bought new ones. This created scarcity in the used-car market, pushing prices higher. It was only a matter of time for the recession to ease and the pendulum to swing back.
Add to this the growing popularity of new-car leasing. According to Experian Automotive, the auto industry’s increased willingness to offer leases with low monthly payments helped fuel a rise in leasing from 20% of the new-car market in 2011 to nearly 35% currently. This, in turn, has led to a wave of late-model, recently-leased vehicles flooding into used-car lots—according to Manheim Consulting, about 570,000 more than in 2015.
So here we are, in a flooded used-car market with correspondingly depressed prices. And the future, as forecast by us and other industry watchers, is no better: all signs point to prices continuing to drop for at least the next couple of years. With gross margins tighter than they’ve been in years, how can any dealer profit or even survive?
The key is in not letting your gross margin drop any lower. That may not sound like an easy thing to do, as pressure increases to move vehicles at lower prices. But you can target one of the leading causes of margin erosion: consumer haggling.
Today, consumers spend hours researching vehicles before they set foot in a showroom. They know what you’ve got, they know what your competitors are charging for similar vehicles, and if your sales team isn’t equipped to answer all their questions, they’ll negotiate hard—cutting into your already-low gross margin.
How can MAXDigital help you “stop the drop?” By demonstrating to consumers that your prices are fair. When they see your customized Value Report complete with MSRP and OEM package information, and trusted third-party evaluations from the likes of Kelly Blue Book, NADA and Edmunds, consumer haggling is reduced or eliminated. So instead of being negotiated away, maintain your profits through communicating quality and value. Start protecting your margin by setting up a demo today.

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