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Date of writing
April 5, 2023
Time of reading
10 minutes
Strategies used by American car dealerships to effectively acquire pre-owned vehicles
In the United States, the used car sales industry holds a value of $138.1 billion. The sales of used vehicles constitute around 74% of the total light vehicle sales in the country, with approximately 43.1 million units sold in 2021. Despite experiencing a temporary drop due to the impact of COVID-19, the value of the used car industry has rebounded and now exceeds pre-pandemic levels.

Senior economist at Cox Automotive, Charles Chesbrough, said, "Used-vehicle sales have shown remarkable vigor to start 2023." This could be because of the high pricing and low inventory in the new vehicle market, which are driving some customers to the used vehicle market. However, many car dealerships may find the next six to twelve months to be decisive as they attempt to adapt to a shifting market and an uncertain financial outlook.
To successfully acquire pre-owned vehicles, car dealerships must have a firm grasp on the market dynamics at play. There are many factors that influence the supply and demand of pre-owned vehicles in the United States, making the used car market a highly competitive and ever-changing industry. The state of the economy as a whole is a major consideration. There is an excess of used cars when the economy is doing well because more people can afford to buy brand new cars. However, the availability of used cars tends to drop when the economy is bad because fewer people part with their vehicles.

The vehicle's age is also a major consideration in the secondhand auto market. In general, a vehicle's value and desirability drop off precipitously as it ages. Classic or rare automobiles, on the other hand, can defy this trend and hold or even increase in value over time. Vehicles with lower mileage are generally more desirable and fetch a higher price, so it's important to consider the mileage when determining a vehicle's worth.

Finally, the emergence of online sales platforms has introduced a new dynamic into the pre-owned vehicle market, as many consumers now prefer to conduct their transactions entirely online.
For car dealerships, this means competing with online marketplaces and taking advantage of new channels for customer acquisition.
Car market drivers
There have been a number of noteworthy trends in the used car industry in the United States over the past decade.

  • The proliferation of online marketplaces to buy and sell used automobiles ranks among the most notable developments in this sector. Carvana, Vroom, and Shift are just a few of the companies that have changed the car-buying and -selling landscape by providing a more streamlined and user-friendly alternative to conventional dealerships. These marketplaces provide customers with an easy way to shop for and buy cars online, frequently including convenient home delivery.

  • Certified pre-owned (CPO) vehicles are becoming increasingly common, which is another development in the used car industry. CPO automobiles are pre-owned automobiles that have been thoroughly inspected and are backed by a warranty from the original manufacturer. Pre-owned vehicles that meet these standards have gained in popularity as consumers look for ways to increase their assurance in their purchases.

  • In the pre-owned market, the popularity of SUVs and trucks has risen alongside the prevalence of CPO vehicles and online sales channels. In recent years, manufacturers have improved the fuel efficiency and adaptability of these larger vehicles, making them more competitive in the marketplace. Because of this, car lots have adjusted their stock to reflect the shifting tastes of their clientele.

  • Finally, in recent years, competition in the used automobile industry has heated up, with traditional car dealerships and online markets both fighting for customers. To stay ahead of the competition, dealerships have begun investing in cutting-edge technology, such as new software, internet marketing methods, and improved customer experiences. Intense market rivalry has resulted in more transparent pricing and vehicle histories for buyers. According to the latest financial statistics, the spread of the coronavirus pandemic has caused a change in consumer preferences toward the purchase of automobiles. Because of the convenience of shopping online made possible by COVID-19, the auto sector has begun to digitally integrate its services for online distribution.
Dealers' Strategies to Win the Used-Car Market
Dealerships have developed a wide range of tactics for efficiently procuring used cars and competing in the second-hand market.

  • About 39.2 percent of the used vehicles for sale in new-vehicle dealerships in the United States were acquired through trade-ins on new vehicles. Furthermore, 27.1% of used autos were traded for other used cars. Just 8% of secondhand cars were purchased through private sales or auctions.

  • The dealerships are constantly on the lookout for high-demand vehicles, such as popular models or those with low mileage, and will make competitive offers to purchase them. The best way for car lots to attract customers looking for specific models is to stock their lots with those models, so it's in their best interest to actively seek out those models in high demand.

  • To attract more private sellers and expand their inventory, dealerships need to invest in marketing and promotion. Advertisements both online and in the mail, as well as other forms of targeted marketing, can all play a part in luring sellers to the dealership. Recent studies have found that almost all car buyers nowadays use digital resources before making a purchase. Many people begin their search online rather than at a dealer.

  • When buying cars for their inventory, US car dealers have several financing alternatives. Embedded finance allows dealers to offer loans directly from their websites. By making borrowing easy, this sort of credit helps dealers sell more. Car dealers can use third-party financial services to streamline their financing procedures with BaaS. This includes payment processing, loan origination, and account management.

  • Pricing is a major factor in the used car market, so car dealers need to offer competitive prices and financing options to draw customers in. Customers who do not have the cash necessary to buy a used car may benefit from the availability of financing options. Dealerships can increase their sales and attract new customers by providing affordable payment plans and interest-free financing.
Embedded finance solutions transform the used-car market strategy
Dealers can save time and money by using embedded finance solutions like digital lending platforms and payment processing systems to buy used cars.
The elimination of time-consuming back-and-forth with financial institutions is just one benefit of these solutions that can help streamline the financing process and make it easier for car dealerships to approve loans and buy used vehicles.

Yet, embedded finance encompasses so much more. For instance, the dealer can use the personal accounts provided by the Carment system to keep tabs on and analyze payments made over any time period, establish multiple physical locations, allocate personnel to specific transactions, and build a client database. Also, it provides an overall sales statistics tool that lets dealers interact with trends across all dealers in a particular area, so that they may determine which vehicles and geographic areas are particularly popular at any given time.

The efficiency and simplicity of embedded financial solutions are two major selling points. Customers can get the financing they need to buy a used car on the spot thanks to digital lending platforms. This can make the buying process more convenient and efficient for the dealership and the customer by reducing the time and effort needed to secure financing and complete the transaction.

Embedded finance solutions help dealerships with cash flow management in addition to streamlining the financing process. Dealerships can expand their selection of pre-owned vehicles and avoid draining their cash reserves by taking advantage of easy access to financing. Smaller lots or lots on a tight budget may benefit the most from this.

Dealerships can lessen their exposure to fraud with the aid of embedded finance solutions. The use of a payment processing system allows car lots to confirm the legitimacy of customer transactions, lowering the likelihood of fraudulent charges. Dealerships can use this to reduce chargebacks and other forms of financial loss.
Embedded finance is a novel idea that could drastically alter the dynamics of organizations in all sectors.
According to the analysis published by McKinsey & Company, embedded finance is expected to create over $230 billion in income by 2025, up from $22.5 billion in 2020. At a five-times revenue multiple, embedded finance will provide over $1 trillion in value by 2025.
Around half of all U.S. enterprises outside the financial sector have either used embedded finance or are planning to do so.
Bricks and Clicks Competition
The rise of online sales platforms has created fierce competition for traditional brick-and-mortar car dealerships. Bricks and clicks competition refers to the competition between traditional dealerships with physical locations (bricks) and online sales platforms (clicks).

One of the main advantages of online sales platforms is their convenience. Customers can browse and purchase vehicles from the comfort of their own homes, without the need to visit a physical dealership. Online platforms also often offer home delivery options, further increasing convenience for customers. Additionally, online platforms may offer lower prices compared to traditional dealerships, as they often have lower overhead costs.

However, traditional dealerships have their own advantages. Customers can physically inspect and test drive vehicles at a dealership, which can be important for customers who want to ensure the quality and condition of the vehicle they are purchasing. Additionally, dealerships can provide more personalized customer service, with experienced sales staff available to answer questions and help customers find the right vehicle for their needs.

To compete in the bricks-and-clicks market, traditional dealerships have had to adapt their strategies. Many dealerships have developed a digital presence. Dealerships have also invested in technology and software to streamline their operations and provide a more convenient buying experience for customers.
Local dealerships must concentrate on offering great customer service and forging lasting connections with their clients if they are to compete with internet marketplaces. This can include making the purchasing process simple, giving affordable prices, and making sure that all previously purchased cars are thoroughly examined and come with warranties.
Investing in software and technology is another tactic local dealerships can utilize to compete on internet marketplaces. Dealerships may reach more customers and provide a more pleasant buying experience by employing digital technologies like customer relationship management systems and internet advertising. Local dealerships may provide customers with the same level of ease as internet platforms by offering embedded finance options.
Buying used cars is an essential component of the auto industry. The supply and demand of pre-owned automobiles are influenced by a wide range of factors in the U.S. used-car market, which is a fiercely competitive and dynamic sector of the economy. Car dealerships must modify their strategy to take into account shifting consumer tastes, novel technologies, and developing trends in order to effectively compete in this market.

Car dealerships can successfully buy used cars and compete in the market by using embedded finance solutions, paying top dollar for trade-ins, actively looking for high-demand vehicles, investing in marketing and advertising campaigns, offering competitive pricing, implementing embedded finance solutions, building a strong online presence, and putting the customer experience first.
Car dealerships must also adjust to the competition between local dealerships and internet platforms. Local dealerships may develop their business and stay competitive in a market that is changing quickly by giving competitive pricing, investing in technology and software, and delivering outstanding customer service.

In order for car dealerships to be successful in the used car market, it is essential that they have a thorough awareness of the market dynamics, have a reliable source for used cars, and have adapted to changing consumer preferences and competitive pressures. Car dealerships may offer a personalized and convenient buying experience for their consumers and expand their business in a highly competitive industry by putting effective tactics into practice and remaining current with the newest trends and technologies.