The continued push for dealers to sell more finance and insurance is ultimately replacing profitability from falling chassis margins. One dealer told us that he now makes more from finance per unit than he does from selling the car, an amazing course of events considering just how large the investment can be in buying cars.
Being somewhat from the old school I have tended to look on quite jealously at the sheer range of products available in the market for sales execs to sell, when all we had “back in the day” was a bit of HP and a warranty upgrade to increase commissions.
We have often highlighted what customers can have “added on” to their new or used car purchase which will give them all kinds of insurance protection both for themselves and their vehicles, but which can also be big profit generators for dealers looking to replace lost revenue from dwindling chassis profits.
This could go some way to explaining why there is sometimes such a large price swing when searching the classifieds and comparing similar models. More and more dealers are packing their inventories with ‘sure sellers’ which are not necessarily going to make large chassis returns but are guaranteed to sell and give them an opportunity to upsell knowing they have the desirable models.
Whilst standing at auction we often scratch our heads in amazement when we notice fellow car dealers seemingly paying ‘retail’ for trade cars. We try to work out how they will create a margin when all the indicators and pricing tools say there is not one. Clearly, as we also often point out, a car with a unique selling proposition is likely to have a clutch of trade buyers bidding on it, and it is often a case of who blinks first (it’s quite easy when using someone else’s money). However the fact that these particular models are almost certainly highly desirable means that the dealer can mark the car up with hardly any money safe in the knowledge that there are enough add-on products he can negotiate with the customer to ensure the deal, as a whole, is a profitable one. If not he just holds out for the screen price until he finds the right buyer.
With the added confidence of knowing how competitive dealer finance now is against a backdrop of reluctant lending on the high street, it is no surprise that over a million cars were sold last year with dealer backed finance and with PCP’s now the preferred choice of the car buyer – and incidentally the most profitable finance option for the dealer – the trend looks set to continue this year.
No great surprise then that with such potential profits on offer that dealers are heavily reliant on finance and insurance products to ensure they can remain profitable.
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