Market Backdrop
Used-vehicle values are moving week to week, compressing front-end grosses and making traditional buying assumptions less reliable. Dealers are prioritizing competitive pricing and faster turns—favoring speed over spread—to avoid carrying-cost spikes and missed market windows.
Five Cost-Control Moves Dealers Are Using
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Shift loan volume toward retail banks: Reduce per-deal credit union fees (about $75 per transaction in Kemp’s market) while maintaining competitive rates and stronger reserve programs. Lenders like Fifth Third and TD were cited as supportive.
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Audit and renegotiate vendors: Benchmark long-standing contracts (e.g., reconditioning, print materials) to current market pricing to capture savings without sacrificing service quality.
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Cut card processing costs: Use an outside audit to uncover non-obvious fees on large card down payments; projected savings exceeded $7,000 annually in Kemp’s case.
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Standardize service contract pricing: Align prices with lender caps to reduce funding friction—e.g., setting around $4,250 when many lenders cap at ~$4,000—then let customers tailor coverage.
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Diversify sourcing beyond auctions: Build service-drive and off-the-street buys (social media outreach) to lower acquisition costs and limit exposure to volatile lanes and rising auction fees. Current mix cited: ~70% auction, with a goal to grow non-auction sources over time.
Operational Shifts to Protect Backend
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Start F&I early: Introduce service contracts and protection options from the beginning of the sales process to build trust and reduce surprises.
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Invest in sales training: Deeper product education lifted backend penetration, with a cited ~15% increase in 2024.
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Lead the team through uncertainty: As some customers “wait it out,” leadership tone and consistency help maintain performance.
Why It Matters
As wholesale prices bounce and auction fees climb, protecting margin requires a dual focus: cutting quiet leaks (lender and card fees, vendor contracts) and smoothing funding (pricing aligned to lender caps), while sourcing smarter and turning inventory faster—especially in truck/SUV-heavy markets.
Practical Takeaways
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Benchmark every vendor annually and document alternatives to unlock quick savings.
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Audit card processing; set policies for large down payments to avoid hidden fees.
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Map lender caps and standardize F&I pricing tiers to reduce rewrites and delays.
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Rebalance lender mix to minimize per-deal fees and support stronger reserve.
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Build service-drive and “street buy” pipelines to lower acquisition costs over time.
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Price to market and track days-to-turn relentlessly to protect overall profitability.
