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Used cars can generate revenue even with no sale pending, author writes.

Making Used Cars Work Harder to Improve Cash Flow

Loaner contracts, test drives and daily rentals can offset holding costs and generate meaningful profits, even at modest utilization rates. Plus, depreciation’s biggest hit came before you acquired the car.

Everyone knows the deal right now: Inventory shortages have pushed used-car values to record highs and dealers seeking inventory find it challenging. Every dealer should ask themselves, “Am I getting the most value for my business with every VIN that I have?” 

If you think the revenue from just one transaction is the most you can get, you’re leaving opportunities on the table.

A healthy fleet of used cars gives a dealership options. You can support fixed ops revenue by supplementing loaner fleets when service demand is high – and service demand has never been higher. Fleets also allow experimentation with new paid offerings such as extended test drives or rentals.

Inventory shortages are expected to continue through the rest of the year and into 2023, making now the time to try new ways to boost your dealership’s used car inventory.

Used Vehicles Can Reduce Pressure on Service Loaner Fleets

When your lot is full of new inventory, it’s easy to keep your courtesy fleet stocked. But when new stock is in short supply, the loaner fleet is an attractive source for top-dollar, pre-owned sales.

But service loaners support thousands in revenue each month. And they’re a critical piece of service experiences that net high customer satisfaction scores and generate loyalty.

Average service delays are a full day longer than they were a year ago, so maximum throughput is essential to service department revenue. Unfortunately, many dealerships’ fleets are shrinking – on average by three cars, based on Dealerware data.

For dealers with conservative utilization rates and average RO values, we estimate that three fewer cars in the fleet will likely cost between $6,000-$12,000 per month in lost service revenue.

So, why not substitute another car from your used inventory for loaner service?

Pre-owned inventory can reduce volume pressure on shrinking service fleets, and modern fleet management tools make it easy to add any vehicle to your fleet. Reserve newer loaner models for warranty or recall customers, offer pre-owned loaners to customers with older vehicles and enjoy a 6- to 12-month service revenue impact on top of the one-time windfall of a used-car sale.

Earn More Per Vehicle With Used Cars in New Fleet Offerings

On top of supporting fixed ops revenue, dealers can maximize profit on trade-ins by using pre-owned inventory for paid fleet services.

Though not all dealers would agree, consumer research shows service loaners don’t need to be free (unless it is a brand promise). Customers will pay to rent cars.

When Dealerware surveyed dealership customers about their service experiences, 54% said they’d pay between $10 and $50 for a service loaner. Almost a quarter said they would pay up to $75, and 12% said they’d pay even more.

Nearly 70% of dealership customers also said they would pay between $50 and $125 daily for an extended test drive, another offering dealers can leverage for cash flow.

Finally, some customers might just need an extra vehicle for a week or a month. Dealerships should recognize their opportunities to win that business. Renting out used cars could be a lower-risk way to experiment in a segment of the mobility market that’s developing rapidly as the cost of building vehicles – ICE and EVs alike – continues rising.

Ford CEO Jim Farley recently nodded to this opportunity in an interview with SeekingAlpha:

“(Electric-vehicle price competition will) happen, but I believe that the answer will not be the lowest build material. It would be something that we offer – someone offers by the mile, by the week, by the day, by the weekend. And it will be optimized not for purchase price, because that won't matter if you rent it. It will be optimized for the total ownership cost.”

Your Risk Is Limited

Knock on wood, cross your fingers and put some pre-owned cars into your fleet. You likely won’t be worried about using used cars in new ways for too long.

Cuyler Owens - headshot.jpgLoaner contracts, test drives and daily rentals can offset holding costs and generate meaningful profits, even at modest utilization rates. Plus, depreciation’s biggest hit came before you acquired the car, and insurance should cover damage or lost business in the event of an accident.

Of course, protecting the vehicles themselves is critical to maximizing their value, too. Consider GPS tracking to prevent theft, and use fleet telematics to automatically charge customers for mileage overages or fuel, minimizing the cost of offering any kind of fleet service.

Cuyler Owens (pictured, above left) is chief commercial officer for Dealerware, a fleet management company that helps dealerships increase profitability and elevate service customer experiences.

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