By Brent Carmichael
From the January issue of UCD
What’s in store for your store in 2025? If it’s anything like 2024, it should be another challenging year to be an independent used vehicle dealer. The new year will not be without opportunities to thrive for both retail and BHPH dealers, but it may be more of a survival mode for most.
To get an idea of what to look forward to in 2025, we first need to review how 2024 treated the independent dealer world. Overall it received decent treatment despite a few bumps and bruises.
From a profitability standpoint, the dealers I have the distinct privilege of working with only saw a 3 percent decrease in profitability in 2024 versus 2023. This was due mostly to the rightsizing of overall operations. Dealers focused on their entire operations from top to bottom to “cut the fat” and ran their operations based on the cash and gross they were generating.
I expect the same focus to continue in 2025. Most dealers will be focusing on generating the capital necessary to run their businesses. As always, there will be those dealers looking to grow aggressively and with rates seemingly continuing to drop, affordable borrowing may be an option to facilitate the growth. I still see it being more difficult to secure new lines of credit in 2025. It’s going to take some patience and the willingness to educate some institutions on our industry.
With my dealer clients, sales volume was flat from 2023. It was not a year to write home about by any means. This was driven more by cash management. Dealers seemed to want to sell what their cash flow dictated rather than sell as much as possible. We all know that we can sell as many as we want or have the financial resources to in this industry. There didn’t seem to be a lack of customers needing or wanting what we have to offer. Overall customer leads were flat in 2024 over 2023 as well.
Same will pretty much hold true for 2025. We should have the customers in the market to sell as much as we would want. The biggest question will be inventory availability. I’m normally a glass-half-full kind of guy, but when it comes to this, I think the glass may be half-empty. Even though the prices had somewhat leveled off the last half of last year, the selection and quality were not what we wanted.
For BHPH, 2024 portfolio performance saw some concerning trends from a dollar loss standpoint. Also from a number loss standpoint, we saw a slight increase or worsening in 2024. I believe this was driven by a couple of factors. The first being the need for inventory. Some dealers accelerated their repo times when a desirable unit was involved. Usually, this would help stabilize the dollar losses as the vehicles were repossessed earlier and in better condition, garnering higher recovery amounts. Unfortunately, this may have not been the case as dollar losses per vehicle increased in the past year. This may have been a result of a slight downward trend in inventory values. To help stem the tide, there seemed to be a renewed focus on underwriting and the overall collection process. Dealers remained more disciplined in both areas seeking quality over quantity.
2025 will see more of the same. I expect to see the average charge off to remain essentially the same, the number as a percent of sold to remain higher than in past years, but expect collection dollars to improve as well as overall collection effectiveness. I believe our customer base is still one more year away from understanding their financial challenges. I believe by the end of 2025, they will be back to normal as far as their budgeting skills are concerned.
Another hot topic in 2025 will be compliance. Stop me if you’ve heard that before. The FTC’s CARS Rule is the main topic of discussion. Still to be determined if or when it will actually go into effect. If you believe what you read, the new administration will have something to say not only about it but other regulatory issues as well.
Compliance is something that has existing dealers debating whether to remain in the industry and causing some others who are looking at getting into the industry to delay their entry until the rules are set. The dealers who are trying to do the right things will survive, and those dealers who like to operate in the gray areas will fall by the wayside. Unfortunately, the dealers who continue to operate in the gray area are going to cause the cost of doing business to increase for everyone else.
So here is the best advice I can give to existing dealers as well as those wanting to get into the business in the coming year: thrive by surviving. 2025 will be another year of survival of the fittest. The fittest won’t wait to get compliant; won’t wait to spend a little money to do so; won’t wait to review all processes and procedures; won’t wait to review all expenses; won’t wait to review all your employees; won’t wait to train; won’t wait to take advantage of technology. Those dealers definitely won’t wait to sell cars and make money.
