Issue link: http://read.dmtmag.com/i/765954
www.PowersportsBusiness.com SOLUTIONS Powersports Business • December 26, 2016 • 27 If you follow my column, you know I have been pushing for dealers to get involved in the pre-owned business. While pre- owned offers many opportunities, here are my "Top 5 Rea- sons" for carrying pre-owned units: 1. Pre-owned prod- ucts offer you an opportunity to make a signifi- cantly higher gross profit than new. Because you control the pricing, gross profit margins of 25 percent or more are attainable. Pricing is seldom influenced by your competition because every pre-owned product is unique. 2. Stocking pre-owned increases your floor traffic. It provides you with an expanded model selection and additional price points that attract new customers to your dealership. 3. Stocking pre-owned helps you increase the volume of your new unit sales. Offering to take trade-ins increases new products sales. Some pre-owned customers can be con- verted into new unit purchasers. They might come back and trade-up to new later on. 4. Selling pre-owned units increases your sales of F&I products. Pre-owned customers are more likely to purchase extended protection programs than new buyers. Some dealers package extended service contracts as a value-add for premium pre-owned products. 5. Selling pre-owned products increases your parts and service sales. Reconditioning generates additional parts and service business. Pre-owned customers purchase accesso- ries and often become good service customers. BUY LOW, SELL HIGH This is the most important rule of pre-owned profitability. If you can't buy it right and make a good profit — don't do it! Set a fixed margin and stick to it. The formula is: Market value less reconditioning and your fixed margin equals trade-in value. TAKE TRADE-INS Advertise — never assume the customer knows. Post "We take trades" on your website, in the front window of your dealership and in all appropriate sales ads. Always use an appraisal form to uncover needed reconditioning and justify your pricing. Solicit trades from service customers — desirable older units, high-dollar repairs and high-mileage units are all targets. Use an "OK for Trade" stamp on the RO when the unit is in for service or repairs. If it is a high-dollar estimate, discuss trading it in rather than paying for extensive repairs. Let customers know you are always looking for good trade-ins. If they express interest, walk them to the showroom and introduce them to a sales associate. PURCHASE OUTRIGHT Offering cash to customers is an excellent way to acquire desirable units. Advertising "We pay cash for used motorcycles and ATVs" can work surprisingly well. When you are buy- ing, the product is used, when you are selling, it is pre-owned. The terminology is important! New or used car, marine and RV deal- ers can be excellent sources. Let them know you are interested in any powersports trades they acquire. They often price trades below wholesale value to get them out of their inventory. Local vehicle auctions can be good sources for desirable pre-owned products. National sources offer additional acquisi- tion opportunities. REPOSSESSIONS Repossessions are another important source. Contact all the banks, credit unions and finance companies in your area and inform them that you are interested in buying repossessed powersports products. They are generally very motivated and may provide aggressive pricing. CONSIGNMENTS Consignments can be a source of additional revenue in pre-owned motorcycles. To increase the profitability of consignments, consider adopting some strict guidelines: 1. A written consignment agreement form must be signed by the customer. 2. Follow the same appraisal guidelines and gross profit structure you established for trade-ins. 3. All necessary reconditioning must be completed and paid for prior to putting the unit on display. 4. Require a non-refundable deposit to help cover the costs of displaying, moving, insur- ing and cleaning the consignment in case the owner decides to pick it up before it is sold. The deposit should be high enough to discour- age the customer from selling it themselves — $500 to $1,000 is not unusual. This deposit will be deducted from the profit when the unit is sold. 5. Specify that if the owner runs an ad for the unit, he must put your store in the ad as the contact. 6. Establish a "Decision Date" on the Consignment Agreement. If it doesn't sell by a certain date, require the customer to either reduce the price significantly, or pick up the unit. Since the target for pre-owned inventory turns is four, 90 days would be the maximum figure — take seasonality into account. PSB Steve Jones is senior projects manager at Gart Sutton & Associates. He has worked in the powersports industry for more than 30 years, for dealerships and manufacturers, and as a consultant and trainer. Contact him at steve@gartsutton.com. Top 5 reasons to be in the pre-owned business RETAIL REMEDIES STEVE JONES