For most dealers, the used car department is the biggest opportunity for increasing profitability. Unlike new cars, a dealer can stock any used car they choose. Most volume and gross issues are directly related to those choices and how the inventory is managed through final sale. No doubt, there is an “art” to managing used cars, and dealers who are getting the best results have added some “science” to it. This enables them to be proactive versus reactive in managing their inventory.
What is the best inventory for you to stock?
Do you know which have been fast-turning cars at your store? There are a variety of software tools that can look at your sales history and identify these for you. Any retailer knows this, down to the color, options, price point, etc. Once you know what these cars are, you can develop a core inventory. These are the cars that you want to make up the bulk of your inventory. They probably aren’t the ones you are currently buying by the truckload from the factory auction, so the majority of your inventory could be in slower-turning units, reducing volume and gross. Is your buyer guessing or knowing with your 7-figure checkbook? Proactive dealers use their core inventory as a shopping list for their buyers and track what percent of those units make up their current stock (goal 80%).
What are the best sources for these units?
Core inventory tends not to be auction program cars. Proactive dealers use these methods to increase their percent of core inventory:
- Check the back door. Are you currently wholesaling core inventory?
- These units come to you every day; just look at the service drive! Many dealers spiff service advisors for letting them know when core inventory is in for service. Managers do an appraisal and contact the customer.
- Use direct mail to target current customers who drive core inventory. Invite them in for a special sale or service offer.
- Who has the bigger house, you or your wholesaler? Develop a network of other dealerships you will buy from. Their non-core inventory could be your core inventory.
How can you improve recon time, cost, and quality?
It makes no sense to buy great cars just to have them take forever in recon and come out in less-than-sale-worthy condition. To proactively manage recon, many dealers have incorporated these processes:
- When buying a car, fill out a 2-part recon pre-approval sheet. Check off what you already know the unit needs and set a dollar limit so service isn’t held up waiting for approval. Place a copy in a dated folder 3-5 days out; review the folder every day looking for cars bottle-necked in the recon process.
- Have prepared cars pulled up to the front. Compare the approved recon with the actual R.O. for cost. Have someone in sales test-drive the car to ensure it’s in sale-worthy condition. If the cost and quality are right, then close the R.O.
How can we do a better job managing aging inventory and wholesale?
We all know that grosses tend to decline with the age of the car. Do you proactively manage units as they age to increase their chances for retail sale and avoid wholesale loss? When is a unit considered “old” to you? If 60 days is your turn policy, when do you take a look at the car? Answer: typically 45 days. Numerous studies have shown that the highest gross peaks at 21 days. Proactive dealers are looking at aging units at 21, 42, and 63 days:
- At 21 days, check the car for defects, re-clean, and park in the “hot spot.” Consider identifying the car as a “manager’s special”, spiffing it, reducing the price, or wholesaling it.
- At 42 days, can we wholesale the car now? Put it on eBay? Trade with another dealer? Park in a “clearance zone” on the lot?
- At 63 days, take it to the best place for wholesale. Depending on the unit, this may be a wholesaler, another dealer, or as a last option, auction.
None of these techniques are expensive to implement, especially when compared to what you may be losing in units, gross, and wholesale. Proactive dealers are managing their core inventory, taking their used car department to the next level of profitability.