Independent car dealerships had to navigate a number of trends in 2024, from supply constraints to consumers reacting to new economic pressures. While the coming year is showing positive signs for used-car dealers, we’ve learned that the future is never certain.

No matter what curveballs are around the corner, there are key strategies used-car dealers should consider to consistently boost profitability.

Tip 1: Understand what sells in your area

Even though you found a great deal on a classic Corvette Stingray that you’d love to drive doesn’t mean it’s going to sell quickly. If you’re a smaller dealer, there’s no need to stock everything, just pay attention to what sells in your market.

Most used-car dealers have heard the adage: “All the money is in the buy.” If you pay too much for a car wholesale, you’re not going to be able to retail your way out of it. Remember to backout all your costs, wholesale, transportation, reconditioning, and even salesperson commissions if that applies.

What will your profit be when (if) you sell the vehicle? If you focus your efforts on what sells on your lot — and quickly — the money will follow.

 To make informed decisions about inventory, take advantage of data analytics tools to discover popular models and pricing trends in your local area. Understanding which vehicles are in high demand will help you optimize your inventory and pricing for the best profit.

Tip 2: Know where to buy inventory

Once you know your market, you’ll need to consistently replenish your inventory. There are several strategies worth considering.

Independent auctions: If your consumers are looking for basic transportation in a lower price range, say between $5,000 and $15,000, your best source is independent auctions. I’ve seen the greatest success at wholesale auctions for vehicles in this price range that have lots of life in them for the next owner. Having an inventory with stepped price points will allow dealers to accommodate the budgets of a broader range of customers.

Local individuals: Your local market can be a gold mine for inventory. Make it very clear on your signage that you buy cars by promoting free appraisals or that you pay cash for cars. With this strategy, you have the car right in front of you to inspect, test drive, and purchase on the spot.

When buying cars in your community, give people a fair price. This will build your reputation as a trustworthy dealer, paying off in the long run with referrals and repeat business.

Online marketplaces: Another place to find individuals selling cars is Facebook Marketplace, Craigslist, or other online marketplace. One advantage of this approach is no auction fees and transportation fees if the vehicle is local. Talk to other dealers, find out where they’re getting vehicles and explore the various platforms available to dealers.

Dealer buys: Dealers that take in off-brand vehicles in a trade are likely to wholesale them out. As a used car manager, start talking to the other used car managers at franchised dealers to inquire about the vehicles they take in on trade but are not well suited for their lot. A Toyota dealer that took in a Chevy on trade might be willing to sell it to you at a reasonable price. If you close the deal, both dealerships save a lot of time and money that they would otherwise be spent at auction.

Tip 3: Understand your transportation costs

While dealers do have to be thoughtful about their inventories, looking at the transportation costs involved can open up new markets for sourcing.

If you’re a dealer who sticks to a 50-mile radius and sends your drivers to pick up the vehicles, you probably have an idea of what that costs per unit. However, the selection in your local market may be limiting. Are your local buys aging out? Do you find yourself discounting them just to get them off your lot?

Tip 4: Leverage your service drive to market to your own customers

More than half of dealership profits come from the service drive. If you have the space and the resources, consider investing in a service center. While you’re working on their cars, customers may start considering a second or third car for their household.

Having service capabilities keeps your customers coming back to your store and allows you to recondition your own cars as well.

Tip 5: Provide vehicle history

History can impact the value of a vehicle. You can use a vehicle history report when you’re wholesaling to help determine its value, or as a sales tool. By sharing vehicle history information with potential customers, you help remove their uncertainty about the integrity of the car and improve the credibility of your dealership.

There are several great tools in the market that may fit into your budget. Many independent dealers invest in such a subscription to enhance their reputation as quality used-car sellers and build a strong base of business. Providing vehicle history reports is just one way to build confidence and encourage repeat business.

Tip 6: Change your pricing strategy

Is your pricing strategy aligned with current market conditions? With today’s economic climate, some customers shop with a monthly payment in mind. That’s when financing becomes more important.

Once you know someone’s budget, you will have a better idea of which vehicles would hold value and be financeable based on their mileage and condition. A good used car dealer wants to show their potential customer a vehicle that they’re going to be able to afford.

Although there’s usually a buyer for every car, aging inventory is not your friend. A holding cost will hurt your profits. Discounting a vehicle may mean that you don’t make as much gross as you’d like, but ultimately that might help build your reputation for a dealer who is willing to give a fair price. If the car is just sitting there, it’s not helping you at all. If it sits for more than 30 days, you need to move it—maybe detail it and find a new place for it on your lot.

Tip 7: Make operations more efficient

Operational efficiency is essential for maximizing profitability. By reducing time spent on manual processes, you’ll be able to spend more time on the floor or on the phone with customers. Dealers leveraging a transportation management system can reduce the time spent ordering transportation by one-third. A comprehensive platform also enables you to manage all carriers in one place, providing full visibility and control over their inventory.

Another key component of efficiency is having reliable partners. Instead of constantly searching for new vendors with a better price and risking unreliable service, build strong relationships with reputation companies.

Navigating the future for independent car dealers

Success is rarely a straight line, and used-car dealers will continually need to evolve to remain competitive. By considering these key strategies, dealers can find new ways to boost their profitability and position themselves for success. Embrace change, stay informed, and build strong relationships with your customers, communities, and fellow dealers.

Dave Sutton is vice president of business development & industry relations at Montway Auto Transport