The next big profit center in used cars?

Prefer to listen to this newsletter? Click here for the audio version.

Hey, everyone — According to some slick math from Motor1 and users on Reddit — it turns out Alfa Romeo dealers average fewer than seven new cars sold every month.

Wow. How long do you think Alfa can keep this up?

—CDG

First time reading the CDG Newsletter? Subscribe here.

The used EV market has been on a rollercoaster — igniting a wave of many differing opinions. But we don’t care about opinions… We care about profit. 🙂

So — let's cut to the chase. Is there money to be made on used EVs or not?

To find out, I spoke with over half a dozen automotive professionals from dealer principals, to battery specialists and EV policy experts. And here’s what I learned: 

Area of opportunity #1: The used EV market will keep growing rapidly over the next few years.

• While only commanding 1.6% market share — year-to-date through Oct., used EV sales are up 63.5% compared to the same timeframe in 2023, according to Cox Auto.

The primary reasons? Affordability, value, and subsidies. 

Sure — on average, used EV financing might need a bigger down payment than used gas cars or leases — but the monthly payments? Pretty much the same. But financing a used EV provides better value since these vehicles are often newer than gas cars — and unlike leasing — it builds equity for owners.

Throw in the Inflation Reduction Act's $4K tax credit on used EVs under $25K (with a few strings attached), and plenty of buyers are locking in some of the best deals around.

The elephant in the room is the Federal EV tax credits will probably get repealed sometime next year (possibly the Fall) — doing no favors for affordability. Without them, demand might cool — though a short-term spike is likely. Nothing motivates buyers like a deadline.

Further down the road — used EV values could rise if new EVs become less affordable. (read that twice)

• Yet — in 2026 — the volume of returned EV leases will spike 230% and flood the used EV market, likely putting downward pressure on prices, reports J.D. Power. 

Regardless — used EV inventory will go from thousands to millions in the not so distant future. And the dealers that are already well-acquainted with market dynamics and put processes in place to sell used EVs, have a distinct edge…

Area of opportunity #2: Dealers with the right vehicle acquisition-to-retail pipeline are winning.

Like most of the dealers I talked to: Metro Atlanta dealer John DeHass from Rick Hendrick Chrysler Dodge Jeep RAM (one of the top 10 used Tesla dealers in the country) gets the bulk of his used EVs at wholesale auctions — supplementing with online used EV marketplaces and private sellers. 

Unlike traditional ICE vehicles — the valuation of EVs greatly hinges on factors like battery health, software options, and range — details that aren't always transparent at every auction.

As a byproduct — the industry is seeing an uptick in EV specialization ventures working their way in to fill critical gaps. Everything from battery health monitors, to appraisal tools, marketplaces, EV-specific auctions, and charging ports are at dealers’ disposal.  

On the other hand — New York City Polestar dealer Matthew Haiken plays it differently. Instead — he purchases a lot of certified pre-owned vehicles directly from Polestar and uses the steady flow of lease returns in his region to fuel his supply. 

But no matter which way dealers are sourcing inventory — with the current tight supply of sub-$25K used EVs, pricing them to meet tax credit criteria often wipes out front-end profit, a few of the dealers I spoke to said. After transport, reconditioning, and bank fees, margins are razor-thin.

And even though the tax credit has made things more competitive — it’s still a massive stimulus for higher used EV sales volumes. (And it’s obviously really appealing to car owners who might need to roll over negative equity).

However — the trickiest part for dealers is managing depreciation risks.

• According to Edmunds, used EV values have fallen 20.5% year-over-year from Q2 of 2023 and 38.5% from Q2 2022.

The good news? Tesla’s initial steep price cuts are in the rearview mirror, and values are stabilizing, likely making it a safer time for dealers to enter the segment.

But a fast inventory turn rate is still vital.

• John told me that he typically gives a car 15 days on the lot to rack up some leads. If that doesn’t happen – he readjusts the price. 

• At the 30-day mark — he shifts to “sell at all costs” mode — ensuring the vehicle moves before becoming a liability.

Part of his strategy also involves paying close attention to out-of-state leads. If buyers from places like California are reaching out — it’s a clear sign that his pricing is competitive and the consumer hasn’t found a better deal in their local market.

But pricing isn’t the only lever available…

Area of opportunity #3: Educating buyers busts misconceptions — and closes deals.

I recently spoke to Recurrent CEO Scott Case who told me that consumers are naturally skeptical about EV batteries because they’ve spent over a decade living with lithium-ion batteries in devices like iPhones. 

They’ve seen firsthand how batteries degrade, making their phones less reliable after just a few years. So, it’s no surprise they assume EVs will do the same.

That’s the perception the industry is dealing with. Virginia dealer Michael L. Wood from Checkered Flag Auto Group, partners with specialized EV-focused companies to tackle this head-on. They provide him with a detailed battery health report, which he shares with customers — offering transparency and peace of mind.

Michael also has an interactive display on every used EV vehicle display page that allows shoppers to see the savings they could accrue over the vehicle's lifetime for an extra layer of FOMO.

Sure — slight degradation will happen but full on battery replacements happen far less than people might think:

Most consumers also don’t realize that depreciation works differently for EVs.

It’s not only about mileage — it’s about battery health. A high-mileage EV with a solid battery can often outvalue a low-mileage one with a degraded one.

But car buyers are used to thinking that mileage tells the whole story, so they undervalue high-mileage EVs with strong batteries. Dealers who take the time to explain this concept and guide buyers to these overlooked vehicles are unlocking big prospects in the market.

So — what’s the big takeaway?

Look — there’s no guarantee that starting up used EV sales at a dealership will turn out profitable. I reached out to franchise dealers on X about this exact topic a few days ago, and there were several dealers who told me they tried it and flopped — some experiments are bound to fail. 

But from where I’m standing — the data and positive anecdotes paint a compelling picture of the used EV market’s short and long-term profit outlook. And there’s enormous potential for dealers to stake their claim in local or regional markets.

At the end of the day — the real question isn’t if there’s money to be made — it’s who’s ready to make it?

Tired of brokers overcharging and slow shipping?

Auto Hauler Exchange is connecting shippers and carriers directly on our online marketplace — no brokers allowed. With 5,000+ vetted carriers, dealers can move vehicles faster and explore new markets. On average, it takes just 5 days from listing to delivery. Don't know how long your vehicles are taking to ship? That’s another reason to try Auto Hauler Exchange.

Get analytics and reporting to better understand your costs and timelines. Best of all, it’s free to list your vehicles, with a transparent fee for shipping — no hidden costs.

Ready to speed up your shipping? Contact the Auto Hauler Exchange team to set up your shipper account today!

How an ex-Hyundai CMO is taking on her biggest challenge yet... X

Stream now on YouTube, Spotify, or Apple.

From gut instinct to data insights: How modern dealerships are transforming car shopping

Stream now on YouTube, Spotify, or Apple.

Three opportunities hitting the CDG Job Board right now:

• Greg Hubler Chevrolet: Variable Director near Camby, IN.

• Dealer Pay: Director of Marketing (remote)

• Toma: Service Consultant (remote)

Looking to hire? Add your roles today—it’s 100% free.

• Group of UAW organizers striking against the union in New York.

• Best EV for Winter and cold weather range.

• Embattled Nissan asks profit-starved U.S. retailers for ‘patience and understanding’ in Thanksgiving weekend memo.

• 'Radical' targets toppled Tavares at Stellantis, sources say.

• GM adds over 132,000 heavy-duty pickups to recall for tailgates that can open unexpectedly.

Thanks for reading. See you on the next edition…

—Car Dealership Guy

Want to advertise with CDG? Click here.

Want to be considered as a guest on the CDG podcast? Right this way.

Want to pitch a story for the newsletter? Share it here.