If there was one clear message from this year’s Auto Remarketing Canada Conference at the Westin Harbour Castle in Toronto, Ont. during March 17-18, it was that in the used vehicle marketplace, a storm is brewing and dealers need to take action to mitigate its impact, not just on their pre-owned business but their entire operations.
Canadian auto dealer was there and attended a number of the workshops and keynote sessions.
THE MARGIN SQUEEZE
Dale Pollak, founder of vAuto gave a very interesting and perhaps surprising keynote address. Pollak talked about four underlying conditions of inventory management and why it is so important for dealers to have them in place to ensure long term success.
He said dealers need to be committed to their used vehicle inventory, price cars rationally, have the right amount of equity to generate a profit and use good “age management” discipline.
Michael Collins
“Age management to me, is different than what you think it is,” said Pollak. He talked about decreasing margins on used vehicles and that how the situation is only likely to get worse. “There was less spread in 2013 than 2012. The difference between what you own your vehicles for and what they are transacting for is shrinking.” Pollak said a big problem is that nobody in the industry is really talking about this nor doing anything to mitigate the situation.
Yet despite the doom and gloom, Pollak said there is good news. For dealers, the answer to shrinking margins and rising costs isn’t easy. He said the key is to viewing your used vehicle department akin to managing a financial investment portfolio and understanding that sometimes, taking a loss is critical to ensuring long term success. Pollak said that while such an approach “violates” long-established rules in our industry it’s the only way for dealers to not only succeed with their used car operations but their overall business as well.
UNDERSTANDING TRADES, UNDERSTANDING CUSTOMERS
Another great keynote session came from Michael Collins, Vice-President, Lender Finance Solutions and Canadian Operations, Dealertrack Technologies.
Collins noted that while many stores today are busy with their digital marketing strategies “and I applaud you for that,” he said, there are some important things to consider. One, that consumers aren’t traveling any further to buy vehicles, secondly that supply of used vehicles remains a challenge and that thirdly, used car pricing continues to rise.
“Don’t be afraid to charge for low mileage used vehicles, there is demand for them,” he said. Today, Collins noted that the average transaction price for a used vehicle is around $20,000, not far off that from a new vehicle a few years ago. “This is a good, strong, healthy sign of used vehicle remarketing in Canada.”
Dealer of the Year award, presented by Equifax Canada went to Pfaff Volkswagen. Mark Fisher, COO at Pfaff Automotive Partners (right), accepted the award from Equifax’s George Staikos, on behalf of Pfaff VW GM Andrew Lennox
He said that trends continue to point to an increase in used car financing and that as a result it’s more important than ever for dealers to understand the credit quality of those coming into their stores to buy. “This is not the responsibility of the lender,” he said. “If you abdicate responsibility, you don’t understand who is sitting across the desk from you.”
Collins also said that the industry needs to really grasp the issue of negative equity and that today’s new cars are the used vehicles of tomorrow. He said that the push towards longer payment terms is “putting risk into the portfolio of lenders” and there needs to be an emphasis towards lower amortization, even though in the short term, it may make many deals harder to close. “There is a ticking time bomb here. We need to be aware of it and curb it as best we can.”
There were several panel discussions at Auto Remarketing Canada this year, which tackled a range of subjects, from an executive analysis of the used car industry, to tools and strategies to help dealers and consignors navigate the wholesale market, financing and social media. Additionally, a trade floor was set up to allow attendees to talk with vendors, network and conduct business.
Unlike some of these events, the breaks were staged in such a way that it gave a good deal of time on the trade floor for both dealers and vendors. In talking with people on both sides of the industry, a number told Canadian auto dealer that in addition to the keynote sessions and workshops, that for them, those breaks were a major factor in making the Auto Remarketing Canada conference a must attend event.
