Webb Details Impact of ‘Thinner’ Dealer Margins on Remarketing Strategies

Granted, the recent retail used-car results of the big dealer groups are fruitful. But don't look past the wholesale impact of softer used-vehicle margins.

Consider what Manheim's Tom Webb had to say in a blog post this week.

With their fourth-quarter results pooled together, the seven publicly traded dealership groups saw their same-store used-vehicle retail unit volumes climb for the 14th straight quarter, he wrote.

What’s more, 2012 was the first time they have combined to sell more than 1 million total used retail units (all stores), Webb noted. He also pointed out how profits hit all-time highs.

But despite all this, the swoon in used-vehicle retail gross margins can’t be ignored, he said.

“Higher margins were accompanied by greater operating efficiencies, faster inventory turns and strong F&I income.  As a result, profits were at record levels and, thus, the ongoing decline in gross margins raised little concern,” Webb wrote.

“That does not change the fact that wholesale buying and selling strategies have been, and will continue to be, altered by the narrower margins,” he stressed.

“For one, thinner margins mean that the linkage between the retail and wholesale market has become tighter.  Changes in one market will be more quickly and more acutely felt in the other.  With the cushion of wide margins gone, look for subtle shifts in retail demand to be quickly reflected in wholesale buying.”

Webb went on to point out that the “range of grosses on individual transactions for individual dealers” fell along with the downturn in average margins. And without high-gross deals at their disposal, dealers should be leery of the hefty losses they could take from “buying the wrong car and the wrong price,” Webb said.

“So, for commercial consignors, who often benefited from that one dealer paying too much in a speculative bid, the need of getting their portfolio in front of right buyer — the first time — takes on added importance,” he concluded.

To read the complete blog entry and see more specific data from Manheim Consulting, visit http://manheimconsulting.typepad.com/manheim-consulting/2013/02/remarketing-strategies-and-results-will-be-influenced-by-narrowing-dealer-margins.html.