Used vehicle return on investment is up to 90.6% in the last 12 months, research reveals, as dealers acknowledge the significant contribution the business can make, particularly to counter the on-going fall in aftersales revenues.

The increasing returns represent an increase in more than 10% on the position a year ago, with the average dealer growing gross profits whilst also selling slightly cheaper vehicles.

So what should dealers be stocking?

Analysis by ASE of retailer data shows there is a clear increase in the return on investment and profitability of vehicles which are:

• Held for 30 days or less
• Below £5,000
• More than five years old

Mike Jones, ASE chairman, said: "It can be no coincidence that this is the area of the market which the majority of the franchised dealers steer well clear of and sees the people who specialise in this area performing significantly better than the average dealership.

"Buying these vehicles effectively requires time, focus, management and skill – factors which may all be lacking in a franchised dealer. Time is frequently diverted into more pressing (although less profitable) new vehicle issues. Leaders in the business need to recognise this and act accordingly.

The exact desirable price point clearly differs according to the badge which the dealership has over the door. However, we have had some great success working with dealers to actively profile their desired stock and then work to bring the current stock in line with this plan."

Jones said that considered on a financial basis only the top performing dealers have a scientifically derived, desired stock profile which they continually refine and use in their buying decisions. This profile will typically include model, age, mileage, price point and can go so far as profiling according to colour and model derivatives.

"The average dealer chooses to operate with a more flexible framework which unfortunately does not deliver the same level of profitability," he said.

The characteristics of what makes an effective used car operation for a franchised dealer are explored in detail by ASE in the AM 2013 Franchised Dealer Report, available from Automotive Management.

Additional coverage looks at the cost of holding onto used cars (measured in days and gross profit per unit), annualised return on investment, gross profit per vehicle (by £s and percentages) across 12 price brands, average gross profit measured against the age of a vehicle and sales mix and impact of age on sales and the return on investment of different aged vehicles.

The aim is to present actionable insight to dealers on what cars to stock.

More information on the AM 2013 UK Franchised Dealer Report is available at www.am-online.com/ami/