Second gross: More important than ever

Dealers are turning to value-added products and services to help improve their profitability but there is still plenty of room for improvement, says Seriti Solution’s Anri Carney.

Anri Carney

According to Seriti, the average dealer profit per unit (APU) reached its highest level in 2020 in September, the last full month of reporting. Not only was the APU higher than in any previous month this year, but at R12 191 it was 11.42% higher than in September 2019.

Seriti reports that the APU was made up of Dealer Incentive Commission (DIC) at 59%, fees (15%) and value-added products (26%). Interestingly, the DIC per R1 000 was R30.64 on average, compared with R29.14 for the same month in 2019.

“Dealer profitability should of course be read in conjunction with the general decline in the market,” says Anri. “The return to profitability does not cancel out the negative impact of almost no sales in April and May this year and the overall decline in the new-vehicle market.”

Naamsa reported in September that despite some promising signs of growth, the market remains 33.4%, or 132 878 units, behind the same period in 2019. In line with this, Seriti Solutions found the dealer second gross profit for the first nine months of the year to be down by 11.73%, when compared with the same time last year.

APU Dealer Profitablility October 2020 Seriti Solutions
Average profit per unit for the year to date. Source: Seriti Solutions

Anri says that the lion’s share of a dealer’s second gross profit (91.66%) came from dealer placed financed vehicles, while vehicles purchased with pre-arranged finance represented 2.82% of dealer profit. The rest is made up of second gross on cash purchases (5.52%).

The dealer analysis further shows that the average value-added products and services (VAPS) per unit have increased from 2019 at 2.08 VAPs per vehicle, an increase of 0.10 compared to last year. An average of 2.71 VAPS per transaction on dealer placed financed vehicles, 0.89 on Pre-Arranged and 0.83 on Cash transactions.

“From this topline analysis of the number of VAPS per vehicle, it becomes very clear that dealers have a lot of room to grow their second gross on pre-arranged finance and cash deals,” says Anri.

VAPS per deal Seriti Solutions YTD October 2020
Value added products and services per deal for 2020. Source: Seriti Solutions

“From our interaction with dealers, it is clear that the most profitable dealers are not only relying on traditional finance-linked VAPS, but also selling products that speak to a customer’s fears or concerns. With COVID-19 still a very clear risk, profitable dealers are selling products such as income protector insurance, extended service plans and other related products to customers who are enticed by the low interest rate, but unsure about what the future holds.”

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