How Ron Marhofer Auto Family stayed on top of used vehicle sales - Automotive News

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As with most franchised dealerships across the U.S., Ron Marhofer Auto Family loaded up on used-car inventory in March for an active spring selling season. But when the coronavirus crisis broke open that month, the retailer's inventory of 900 used vehicles quickly started to sour.

With the vehicles losing value and consumer demand waning, COO Chris Marhofer decided to slash prices and liquidate much of that used-vehicle stock.

"I wasn't sure what demand was going to do, but I was pretty confident that it was going to get worse," Marhofer told Automotive News. "We just decided to take our losses early."

The five-store group with headquarters near Akron, Ohio, had good reason to believe customer traffic would drop to minimal levels. Though dealership sales were considered essential business in Ohio and the retailer never had to close, Ron Marhofer Auto saw sales plummet. It temporarily furloughed porters, receptionists and business development staff.

The pandemic disrupted what had become one of the most important seasons for a group with one of the best ratios of used-to-new vehicle sales in the country. Ron Marhofer had worked for years to perfect its used-vehicle acquisition and pricing strategy, which includes a dedicated vehicle sourcing team that reports directly to the group's inventory and marketing director. The virus outbreak meant much of the group's carefully selected inventory now would go out the door to retail customers at fire-sale prices. No vehicles were sent to auction.

The retailer cut prices by up to 8 percent from normal levels, Marhofer said, bringing down inventory to 625 used vehicles by the end of April.

The used-vehicle team kept a close eye on auctions, where Ron Marhofer Auto sources 70 percent of its used stock. Fewer cars passed through auctions at the onset of the outbreak as physical lanes shut down in favor of digital sales methods and lease returns tapered off.

But as the weeks passed, Marhofer spotted "some pretty great deals" at the auctions as fewer dealers were bidding.

Since he had liquidated much of his excess inventory ahead of others, he had cash from those sales to load up on fresh inventory.

"I was in the buying frame," Marhofer said.

The dealership group restored normal work schedules for its sales employees at the end of April as customer traffic picked up. In May, it sold 861 used vehicles, its highest monthly mark ever. In June, July and August, monthly used sales volume dipped back to normal levels as wholesale vehicle prices soared. The group's average gross profit per used vehicle more than doubled its pre-pandemic average — from $650 to $1,450.

Ron Marhofer Auto's modern-day used-vehicle strategy began in 2014 with the establishment of a full-time buying center. The group started with two full-time buyers and now employs six to source vehicles online. All six are now buying online and working from home.

The group will go as far east as New Jersey, as west as Chicago and as south as Tennessee to buy used vehicles. As it expanded its sourcing geographically, relying on trucking companies became a hindrance.

"One of the bottlenecks we ran into was we had to buy a car, get it through our reconditioning system and on the lot in eight days or less," Marhofer said. "A lot of trucking services ... couldn't bring the cars to us fast enough. By the time we would get the car to the lot, it would be unprofitable."

So the retailer now uses 80 part-time drivers to transport those vehicles. Most are retirees, Marhofer said.

In 2019, Ron Marhofer Auto Family had the fourth-highest used-to-new vehicle sales ratio among Automotive News' top 100 used-vehicle retailers. The group sold 4,918 new vehicles and 8,604 used vehicles for a ratio of 1.75-to-1, well exceeding the industry's 1-to-1 gold standard. Its used-vehicle sales in 2019 rose 27 percent thanks to a reduction in the average time it takes to acquire and recondition inventory. In 2018, the group sold 1.3 used vehicles for every new vehicle.

This year, as the pandemic idled auto plants and strained new-vehicle inventory, Ron Marhofer's used-to-new ratio has risen again, to 1.9 used vehicles for each new vehicle sold through August.

While the jump in sales and profitability was an unexpected surprise, Marhofer said he doesn't expect the streak to last. The used-car business will revert to more normal volume and profit levels in October, he predicts, as automakers replenish new-vehicle inventories and more used vehicles hit the wholesale market from lease returns and rental car fleets.

That could even push prices lower than they were pre-pandemic and below normal fall levels, he said: "I see those [as] compounding things that will drive down used-car prices before the end of the year — more than what we're used to."

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