Wholesale Profit Loss: What’s it costing you?
- Wholesale profit can be affected by a variety of factors.
- 45% of wholesale vehicles are sold at a loss.
Do you know your wholesale profit? What about loss?
If your wholesale profit is fine, is fine really the goal? Even if you’re keeping tabs on your wholesale profit, there may not be a glaring issue on the surface.
Let’s take a look at Michael. Michael, a used-car salesman at ABC Motors, took in a 2014 Subaru Outback on trade. He was convinced he was getting the better end of the deal because the dealership didn’t have many Outback models in stock and they tend to hold their resale value. But is that enough?
Your wholesale profit can be affected by a variety of factors that aren’t always considered. These include:
- Time on lot
- Maintenance on vehicle
- Consumer wants
When those factors aren’t considered, your wholesale profit becomes wholesale loss. In fact, 45% of wholesale vehicles are sold at a loss. The average dealership lost $143,0151 in gross profit from negative wholesale deals in 2017. When you factor in the average age of vehicles on the lot (83.8 days), and a daily cost of the vehicle sitting on the lot ($25/day), the average impact to gross profit jumps to $465,8121.
How many vehicles do you take as trade that you end up wholesaling within a week? A month? How many do you lose money on?
Remember Michael? He took in that 2014 Subaru Outback on trade and sold a 2018 Honda Pilot. But, the Outback sat on the lot for 74 days. How does the vehicle Michael sold affect the vehicle he took in on trade? Let’s do the math.
Michael was able to hold $254 in FE Gross, and F&I picked up another $1,548. With incentives from Honda, he adds another $700.
Unfortunately, the Outback gets sold at auction at a loss of $1,265. Due to floorplan interest for the first 60 days, the $300 pack does little to help.
After paying commissions to sales and F&I, with a daily cost-to-carry of $25, what started as a decent deal ended up as an overall loss of $773.
So how can your dealership improve?
- Use a reporting tool to track the whole deal, quickly. If you were Michael’s manager, you could probably gather all the information about the whole deal. But how long would it take you? With a reporting tool that tracks the life of deal from start to finish, you can get the information you need at a glance.
- Use reporting to find training opportunities. Once you have the data, you can take action to improve. Better reporting allows you to provide your employees the training they need to secure better deals and make the dealership more money. Need help implementing new processes and training? Consider a consulting service dedicated to your dealership.
- Use a vehicle appraisal tool built into your DMS. If your vehicle appraisal tool is from a third-party, how can you be sure the information you need is always up-to-date? With a tool built into your system, the value assigned to the vehicle by the appraiser always matches the value used in the deal.
By using the three tips above, you can ensure your dealership sees wholesale profit increases, not losses.
Automotive News recently published an article discussing why dealerships are sourcing lower-grade used vehicles to fill their lots.