Used car sales barely grow year over year. Some of the slow growth is attributable to offerings from manufacturers to entice customers from used to new, but a bigger issue is that people have very little reason to buy used cars; in fact, they have reasons not to buy.
• Most consumers dislike the process and want to avoid it
• Car quality has improved so consumers own cars longer
• Sales tax adds to the friction of frequent buying
Removing those objections through a program could expand the used car market by getting consumers to buy cars more frequently.
According to NADA, dealers make an average of $1800 gross profit on a used car sale; and if that buyer buys only once every six years, then the dealer make an average gross profit of $300 a year. $1800 invested in a bank account could be worth around $1900 six years from now (depending on interest rate, inflation, risk exposure, et cetera…).
Breaking apart the cash over years makes it easier to imagine how a
cash stream could be made more profitable for the dealership; a program simply has to return more than $1900 over six years.
A frequent buyer program could increase consumer purchases, result in a better cash stream for the dealer, lower marketing costs, and potentially lead to more referrals. The frequent buyer would mean a reduced markup for that buyer, compared to other, retail buyers, the dealer would help with the current car and financing options. The lower cost would be in exchange for more frequent buying.
Ultimately, if a dealer could get a cash stream out of the buyer, it would smooth out yearly fluctuations and increase profitability. This would be car buying as a service, not as a commodity.