For most dealers, the used vehicle department holds the biggest opportunity for increased profit. Unlike new vehicle inventory, a dealer has a lot of flexibility and choice in the used vehicles they stock. This provides the opportunity to stock models and body styles that are popular in their market. More importantly though, these inventory choices directly affect volume and profitability in a dealership.
No doubt, there is an art to managing used vehicles. But dealers who see the best results know there is a science to it as well. The best UV profitability is directly tied to a proactive inventory management style versus a reactive style. If you are searching for answers to your UV woes, check out the answers below to some frequent questions we hear from our 20 Group members and consulting clients.
Which is the best inventory for my dealership to stock?
There is no one-size-fits-all answer to this question as each market has varying tastes and needs. However, the first questions to ask when developing your UV inventory strategy are:
- Do you know which vehicles have been fast-turning at your store?
- Do you know which vehicles are fast-turning in your market?
Many dealers who struggle with UV profitability typically buy the lower-demand inventory by the truckload from auctions. This makes their core inventory slow-turning, reducing their volume and gross. Make sure your buyer isn’t guessing about which vehicles to purchase. Instead, ensure they know what is required to be purchased with your 7-figure checkbook. Proactive dealers use their core inventory as a shopping list for their buyers and track what percentage of those units comprise current stock.
All profitable retailers know which cars will sell fast, including the color, options, price point, etc. There are many software tools available that can identify fast-turning vehicles for you; pick the one your managers like the best so it will be used. Once you know which vehicles turn quickly at your dealership you can develop your core inventory. As your core inventory grows as a percentage of your total, so will your gross, volume, and turns.
Where can I source my core inventory?
Core inventory typically doesn’t come from auction “program cars.” Once you have a shopping list, proactively searching for core inventory units becomes a critical management function. Profitable dealers use a combination of methods to increase their percentage of core inventory:
- Check the back door. Are you currently wholesaling core inventory?
- These units come to you every day in your service drive. Many dealers ignore service advisors, and even their CRM, when they hear that core inventory is in for service that day. If you keep your eyes open, managers can do an appraisal and contact the customer. This will add to your UV core inventory and help move a new car off your lot as well.
- Use marketing to target current customers who drive core inventory. Invite them in for a special sale or service offer.
- Develop a network of other franchise-specific, non-competing dealerships you can to buy from. Their non-core inventory could become your core inventory, and vice versa.
- Everyone knows you sell cars. Do they know you buy them too?
How can I improve reconditioning time, cost, and quality?
It makes no sense to buy great cars just to have them get held up in the reconditioning work flow, and come out in less-than-saleable condition. To proactively manage recon, successful dealers have incorporated these processes:
- When buying a car, fill out a two-part recon pre-approval sheet. Check off what you already know the unit needs and set a dollar limit so your service team isn’t held up waiting for approval.
- Place a copy of the pre-approval sheet in a dated folder, 3-5 days out. Then review the folder every day and look for cars bottle-necked in the recon process.
- Again, there are also software solutions to better manage recon. Pick one your managers like so they’ll use it.
- Pull finished vehicles up to the front of the showroom. Compare the approved recon with the actual RO for cost. Have someone in your sales department test drive the car to ensure it’s in saleable condition. If the cost and quality are right, then close the RO.
How can I do a better job managing aging inventory and wholesale?
We all know that gross tends to decline with the age of a car. Also, book values seem to be changing faster than ever. Do you proactively manage units as they age to increase their chance for retail sale and avoid wholesale loss? If 60 days is your turn policy, when is a unit old to you? (Hint: 45 days) When should you look at the vehicle? Numerous studies have shown that the highest gross peaks at 21-24 days. Proactive dealers are looking at aging units on a regular basis and doing the following:
- First Review—Check the car for defects, re-clean, and park it in a hot spot. What is the internet activity on this unit? What is the price rank in the market and on third-party websites?
- Second Review—Is it priced near the best in the market? Should you wholesale the car or trade with another dealer?
- Third Review—This unit has become a “loss leader” for internet leads and F&I income, so do you have it priced best in the market? Parked in a “clearance zone” on your lot and clearly marked as a “special?”
- If you are on a 60-day schedule, you could review units at 15-30-45 days. However, if your car is an auction purchase, the schedule should be shorter, i.e. 10-20-30 day reviews. If there is a large supply, you will have to price the car more aggressively, sooner, for it to even get a glance online. The good news is that if you sell it quickly, you can purchase another one and get an extra turn through recon/F&I/DOC fee for more gross.
Many dealers discover that when they sell more used cars, they also manage to sell more new cars with the traffic increase. 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 and taking their used vehicle department to the next level of profitability. If you are interested in improving your gross, NCM can help with Training, Consulting, and Used Vehicle 20 Groups.