Digital Dealer - April 2018 - 16

PreOwned

DD24
PRESENTING COMPANY
By DALE POLLAK
Founder
vAuto

Margin
Compression
Takes a Bite
-How Will
You Bite Back?
For many dealers,
margin compression
in used vehicles has been
a bit like a leaky water
line. The truth is, the
line's been slowly
dripping for years. But no
one really noticed it until
now-after a ceiling or
wall has started to
bubble, crack or crumble.
Dealers' awareness
of margin compression
seems to have taken hold
this year, following the
realization that despite a
fairly strong year of used
vehicle sales in 2017,
they actually made less
money.
You can see this picture in end-of-year financial data from the NADA.
Their December 2017
financial profile shows
two disturbing year-end
stats:

AVERAGE NET
PROFIT PER USED
VEHICLE RETAILED
IN 2017: -$2. I can't

16

APRIL 2018

remember ever seeing
used vehicle net profit
as a negative number.
But it's been dropping
for the past few years. It

D I G I TA L D E A L E R . C O M

was $164 in 2014, $132
in 2015 and $65 in 2016.
Can you hear the sound?
Drip. Drip. Drip.
FRONT-END GROSS

PROFIT DECLINED.

NADA reports the average retail gross profit
dropped $78 to $2,337
last year, down from
$2,415 in 2016. The average was $2,444 in 2015.
Drip. Drip. Drip. (Note:
NADA's numbers include
F&I income, which means
the margin decline would
be more pronounced, given many dealers' efforts
to increase F&I sales in
recent years.)
The numbers wouldn't
be so disturbing if they
were just a temporary
blip. But like the leaky
water line, the problem's
more chronic than coincidental.
The key question on
the minds of dealers in
my conversations is, now
that they've recognized
the problem, what steps
can and should they take
to fix it?
I'll answer the question
with some bad news.
Unfortunately, there isn't
really a "fix" for margin
compression. It's now the
nature of our ever-more
competitive, efficient and
transparent used vehicle
marketplace.
But there are ways
to mitigate the problem
and stop leaks that
often erode used vehicle
profitability. Here are four
recommendations:
MEASURE/MANAGE
EFFICIENCY OF
ACQUISITIONS. At

many dealerships, there
are at least a handful of
individuals, if not more,


http://www.DIGITALDEALER.COM

Table of Contents for the Digital Edition of Digital Dealer - April 2018

Digital Dealer - April 2018
Contents
Six Steps to Promote People Properly
Relationship Development With People Is the Key to Your Success
NO, Dealers! You Don’t Need Work-Life Balance.
Margin Compression Takes a Bite—How Will You Bite Back?
Platinum Rule Marketing!
Digital Dealer 24 Conference & Expo Pre-Show Highlights
Ben Keating Principal Owner & Chief Visionary, Keating Auto Group
Are You a Student, a Disciple, or a Disciple-Maker?
The One Thing That Changes Everything in F&I
A Mystery Shop for a Major National OEM (Part 2)
Prioritize Mobile Experiences or Risk Losing Customers
Google Analytics How-To: Hold Your Vendors Accountable
Reach More Car Shoppers with Mobile Video on Facebook
Digital Dealer - April 2018 - CT1
Digital Dealer - April 2018 - CT2
Digital Dealer - April 2018 - Digital Dealer - April 2018
Digital Dealer - April 2018 - Cover2
Digital Dealer - April 2018 - 1
Digital Dealer - April 2018 - Contents
Digital Dealer - April 2018 - 3
Digital Dealer - April 2018 - 4
Digital Dealer - April 2018 - 5
Digital Dealer - April 2018 - Six Steps to Promote People Properly
Digital Dealer - April 2018 - 7
Digital Dealer - April 2018 - Relationship Development With People Is the Key to Your Success
Digital Dealer - April 2018 - 9
Digital Dealer - April 2018 - 10
Digital Dealer - April 2018 - 11
Digital Dealer - April 2018 - NO, Dealers! You Don’t Need Work-Life Balance.
Digital Dealer - April 2018 - 13
Digital Dealer - April 2018 - 14
Digital Dealer - April 2018 - 15
Digital Dealer - April 2018 - Margin Compression Takes a Bite—How Will You Bite Back?
Digital Dealer - April 2018 - 17
Digital Dealer - April 2018 - Platinum Rule Marketing!
Digital Dealer - April 2018 - 19
Digital Dealer - April 2018 - 20
Digital Dealer - April 2018 - 21
Digital Dealer - April 2018 - Digital Dealer 24 Conference & Expo Pre-Show Highlights
Digital Dealer - April 2018 - 23
Digital Dealer - April 2018 - 24
Digital Dealer - April 2018 - 25
Digital Dealer - April 2018 - 26
Digital Dealer - April 2018 - 27
Digital Dealer - April 2018 - Ben Keating Principal Owner & Chief Visionary, Keating Auto Group
Digital Dealer - April 2018 - 29
Digital Dealer - April 2018 - 30
Digital Dealer - April 2018 - 31
Digital Dealer - April 2018 - 32
Digital Dealer - April 2018 - 33
Digital Dealer - April 2018 - Are You a Student, a Disciple, or a Disciple-Maker?
Digital Dealer - April 2018 - 35
Digital Dealer - April 2018 - 36
Digital Dealer - April 2018 - 37
Digital Dealer - April 2018 - The One Thing That Changes Everything in F&I
Digital Dealer - April 2018 - 39
Digital Dealer - April 2018 - 40
Digital Dealer - April 2018 - 41
Digital Dealer - April 2018 - A Mystery Shop for a Major National OEM (Part 2)
Digital Dealer - April 2018 - 43
Digital Dealer - April 2018 - Prioritize Mobile Experiences or Risk Losing Customers
Digital Dealer - April 2018 - 45
Digital Dealer - April 2018 - Google Analytics How-To: Hold Your Vendors Accountable
Digital Dealer - April 2018 - 47
Digital Dealer - April 2018 - Reach More Car Shoppers with Mobile Video on Facebook
Digital Dealer - April 2018 - Cover3
Digital Dealer - April 2018 - Cover4
https://www.nxtbook.com/nxtbooks/digitaldealer/202004
https://www.nxtbook.com/nxtbooks/digitaldealer/202003
https://www.nxtbook.com/nxtbooks/digitaldealer/202002
https://www.nxtbook.com/nxtbooks/digitaldealer/202001
https://www.nxtbook.com/nxtbooks/digitaldealer/201912
https://www.nxtbook.com/nxtbooks/digitaldealer/201911
https://www.nxtbook.com/nxtbooks/digitaldealer/201910
https://www.nxtbook.com/nxtbooks/digitaldealer/201909
https://www.nxtbook.com/nxtbooks/digitaldealer/201908
https://www.nxtbook.com/nxtbooks/digitaldealer/201907
https://www.nxtbook.com/nxtbooks/digitaldealer/201906
https://www.nxtbook.com/nxtbooks/digitaldealer/201905
https://www.nxtbook.com/nxtbooks/digitaldealer/dd26showdirectory_042019
https://www.nxtbook.com/nxtbooks/digitaldealer/201904
https://www.nxtbook.com/nxtbooks/digitaldealer/201903
https://www.nxtbook.com/nxtbooks/digitaldealer/201902
https://www.nxtbook.com/nxtbooks/digitaldealer/201901
https://www.nxtbook.com/nxtbooks/digitaldealer/201812
https://www.nxtbook.com/nxtbooks/digitaldealer/201811
https://www.nxtbook.com/nxtbooks/digitaldealer/201810
https://www.nxtbook.com/nxtbooks/digitaldealer/201809
https://www.nxtbook.com/nxtbooks/digitaldealer/201808
https://www.nxtbook.com/nxtbooks/digitaldealer/201807
https://www.nxtbook.com/nxtbooks/digitaldealer/201806
https://www.nxtbook.com/nxtbooks/digitaldealer/201805
https://www.nxtbook.com/nxtbooks/digitaldealer/201804
https://www.nxtbook.com/nxtbooks/digitaldealer/201803
https://www.nxtbook.com/nxtbooks/digitaldealer/201802
https://www.nxtbook.com/nxtbooks/digitaldealer/201801
https://www.nxtbook.com/nxtbooks/digitaldealer/201712
https://www.nxtbook.com/nxtbooks/digitaldealer/201711
https://www.nxtbook.com/nxtbooks/digitaldealer/201710
https://www.nxtbook.com/nxtbooks/digitaldealer/201709
https://www.nxtbook.com/nxtbooks/digitaldealer/201708
https://www.nxtbookmedia.com