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How big exactly
is the used car industry in the U.S.? Is it an area of growing opportunity?
How does the average used car turn rate affect sales opportunities?
How much of the used car market do dealers own? Are we headed for
good times or bad?
Based on an
11 year average, 57 million vehicles are sold each year in the U.S.,
with an average of 18 million (31%) being new vehicle sales (including
private, government, commercial and fleet), and 39 million (68%)
used. Of the record 59.1 million vehicles sold in the year 2000,
30% were new, and 70% (41.6 million) were used. The used market
alone represents $363 billion dollars in gross sales, with an average
selling price of $8,716 per copy.
Of the 41.6
million used vehicles purchased in 2000, 28% or 11.9 million were
bought and sold between consumers, known as the C2C market. Which
means 72% (29.7 million used units) were sold by franchise and independent
dealerships. Nationally, the three year average is 38% of all used
vehicles are sold by franchise dealers, 34% by independents, and
27% C2C.
Based on the
past 11 year average, franchise dealers sold 15,375,178 used vehicles
every year, which represents 39% of the used market. Over the same
period, the independent dealers sold an average of 13,084,181 units
per year (32.6% of the used market) and the C2C market has averaged
11,151,000 per year (28.2% of the used market)
.
The average for the past 3 of 11 years shows a slight increase in
the total volume of used cars sold by the independents (1.4% increase).
While the franchise dealers lost 1% and the C2C market lost .2%.
Of the 213.3
million registered vehicles in 2000, 42 million were re-sold, re-leased,
or turned-in within the calendar year, which represents a 19.7%
annual turn rate. And this percentage remains quite constant year
to year. So we can bank on the fact that one-out-of-five registered
vehicles will change ownership every year. This means that based
on a 20% annual turn rate alone, over 41 million adults will be
in the market for a vehicle every year.
According to
the Global Vehicle Remarketing report published by the ADESA Corporation,
and written by Tom Kontos, "...used vehicle sales are expected
to grow from the 41.6 million in 2000 to 46.5 million in 2005 -
an increase of nearly 5 million units." I would say the used
car industry is headed for good times.
Franchised and
independent dealers took in 20 to 22.1 million vehicles on trade
from customers, and traded 10.9 million units among themselves,
and consigned 4.1 million units through auctions. According to the
NADA, franchise dealers alone wholesaled 7.9 million units in 2000.
My brother and a business associate are both wholesalers, and I
can tell you there is a variety of sources for motivated dealers
to buy an endless supply of clean older cars at prices far below
market average. I have often said, that the deal and the profit
is made or lost in the buy. If you buy right, you can sell at a
very competitive price, make a good profit, and turn your inventory
faster, in good times and bad.
The most commonly
sold used car at a franchise dealership is 3 years old, and 87%
are less than 8 years old. For the independent dealer the most commonly
sold vehicle is 8 years old, and 61% of all sales are 8 years old
or older. Clearly, the franchise dealer is marketing different products
to a different buyer than the independent. This can be to your advantage
if you market yourself properly. The average gross profit on a new
car from a franchise dealer is $1,517 (6.1% of gross profit), and
$1,490 (11% of gross profit) on a used model. The independent fares
better on the older used models at $1,822 (16.8% of gross profit)
per unit, and the buy-here pay-here does the best at $3,471 (51.6%
of gross profit) each.
Based on the
past eleven years in which I studied the statistics, I have come
to realize that the car industry is in a constant fluid state. It
is not locked-up or shut down based on negative economic conditions.
It remains fluid, ever changing, and ever evolving. People always
need cars. During the past eleven years, we experienced booms, crashes,
exponential stock growth, and massive financial failures. But all
the while, people bought cars.
People continue
to buy cars in good times and bad, but the price, model and year
of vehicles they buy, and who they buy them from will fluctuate
based on their current pocket book, and the availability of credit
extended to them.
The primary
reason people will always buy cars, is because they need a replacement.
Cars wear out, they crash, and get destroyed by natural disasters.
They get stolen, re-possessed, and towed away from too many tickets.
Also, peoples
automotive needs change almost regularly. Babies are born, children
move-out, in-laws move-in, jobs change, commute patterns change.
People move (20% of the population moves every year), they get divorced,
file bankruptcy, retire, graduate from school or college. They buy
a boat, a camping trailer, or a snowmobile, so they suddenly need
a tow vehicle. They move from Florida to Colorado, so they need
a 4x4. These normal life events happen all the time, in good times
and bad, and they can change the individuals automotive needs instantly.
According to
Tom Webb, Chief Economist for Manheim Auctions. "The large,
growing and somewhat aged vehicle population suggests strong used
vehicle activity for years to come. The 213 million plus units in
operation (the majority of them over 8 years old) suggests to us,
that on any given day, there are literally millions of households
that would like to trade up to something better if they could do
so in a relatively easy manner at an affordable payment."
Historical data
has also shown that the vitality and profitability of retail used
sales is more closely tied to the availability of consumer credit,
than to the cost of the vehicle. If you want to be a market leader
in a slow economy, your primary job is to offer a wider variety
of flexible financing options to fit any credit situation.
The age distribution of vehicles in operation shows an expanding
number of vehicles in the 3 to 6 year old and the 7 to10 year old
categories. These are the primary age vehicles for independent dealers.
For example, in 1999, 66% of the average independent dealers inventory
was 7 to 10 years old, and 23% was 3 to 6 years old, while 10% was
over 10 years old. Remember, in slower economic times, older vehicles
are more in demand, and based on the statistics, older vehicles
from independent dealers make a higher gross profit.
The question
is not if people are going to buy used cars this year, but what
used cars are they going to buy, how are they going to finance them,
and who are they going to buy them from. But rest assured, they
will continue to buy, sell, and trade, as their transportation needs
continue to change. Because when it comes to people and their lives,
the only thing that remains constant, is change.
I can also tell
you, that in slower economic times, you do need to approach things
differently. You need to stock older, higher mileage, and more base
model, entry-level cars. You need to offer a more flexible array
of financing options for B, C and D paper, and you should be in
the buy-here pay-here business.
Based on the
past eleven year average, 11.15 million vehicles are sold each year
in the U.S. in the C2C market. With an average retail gross profit
of $1,822 per copy, this represents $39.3 billion dollars in potential
gross profit if these vehicles were sold by the dealers instead
of through the C2C market.
How can you
capitalize on this huge C2C market? I have several proven methods
that allow dealers to make real money from the C2C market, but that
is a detailed topic discussed in my seminars.
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