New-car quality and durability has increased significantly over the past two decades, and this is having a strong impact on how these cars are bought and sold as used vehicles.

The latest report from the Used Car Guide division of J.D. Power breaks these changes down into four key areas, one of which involves the franchised dealer’s focus on pre-owned cars. (Auto Remarketing will recap the three ofther areas highlighted by the white paper, titled “Lasting Longer: How Better Quality is Affecting Used Vehicle Demand,” in upcoming editions.)

You might remember a time when the used car wasn’t necessarily a priority for much of the franchised dealer body; or, as the report describes it, “an overlooked byproduct of new-vehicle sales.”

Instead of retailing trade-ins, many franchised stores would often wholesale these cars for a number of reasons: their focus was on new, there weren’t as many marketing and pricing options for these used cars, and durability wasn’t what it is today, the report said.

In those days, reaching 50,000 or 60,000 miles might be a big drop-off point for used-car demand.  But things have changed, the report notes.

“Quality improvements have reduced consumer concerns about long-term dependability, while access to data and technology is allowing dealers to make more educated decisions regarding trade-in appraisals, wholesale and retail pricing, and inventory acquisition,” it indicates.

Larry Dixon, senior manager of market intelligence at the Used Car Guide division of J.D. Power, pointed out: “The used vehicle market is three times larger than the new vehicle market, and used vehicles are often more profitable than new ones.

“A growing supply of reliable and more affordable pre-owned cars and trucks is helping fuel franchise dealers’ plans to expand used-vehicle operations,” Dixon added.

Consider two of the publicly traded dealership groups, Asbury Automotive Group and Sonic Automotive, both of which have launched stand-alone used-car programs in recent years.

Going back to the paper’s point about retailing cars that would otherwise be wholesaled, Asbury traditionally takes about 35,000 cars a year to the auctions, the retailer explained in its latest quarterly earnings call.

Q Auto is a way to retail some of those units.

“But it's not easy. If it were easy, there would be many others out there selling used vehicles in a standalone format in a big way,” Asbury president and chief executive officer Craig Monaghan said during the call.

“We know that's not the case,” he said. “So, it takes some time. It takes some commitment.”

Sonic — which has rolled out a used-car standalone program of its own in Echo Park — recently hit its goal of selling 100 used vehicles per store per month.

Along with accomplishing that feat in the second quarter, Sonic set an all-time high for used sales, moving 30,301 units.

And its Echo Park stores retailed 881 units in the second quarter, a 33.5-percent improvement from the first quarter.

 “I’m proud of our operations team for achieving the lofty goal of retailing 100 pre-owned vehicles per store per month,” said Sonic president Scott Smith said in a company statement made available with its Q2 report.

“We have had quarters in the past when we approached achieving this metric and several months where we surpassed this metric, but it had never been achieved on a quarterly basis,” Smith continued. “Generating this type of retail activity fuels our fixed operations and F&I areas where we are most profitable.”

Not to mention, used-car operations are quite profitable themselves.

The Used Car Guide report said that used-car gross profit margins averaged 13 percent last year, according to data from the National Automobile Dealers Association. New cars? The average was 3.8 percent. 

Staff Writers Sarah Rubenoff and Nick Zulovich contributed to this report.