Cure Your Used Vehicle Gut with Simple Math

POSTED ON January 23, 2020

Most of the time when we talk about our gut, we allude to the belly protrusion that is formed by an affinity for barley and hops or for a few of you perhaps, the clothes washing-able 6-pack. In the retail automotive world however, there is another gut that we all need to be aware of—the figurative, often self-righteous and profitability-stifling, UV gut.

I have had many dealers over the years “explain” to me that they were not profitable in their used vehicle department because their UV manager lacked a “gut” for used vehicles. Furthermore, I’ve had dealers bring their newly hired “UV savior” to meetings, introducing them pridefully as possessing an instinct for used vehicles. My first thought is always, “oh no” as I listen to them, together, explain to me how they’re going to turn the department around with abstract, subjective strategies. There is too much data out there today to seek out a UV manager with the elusive “gut”, unless that gut has the ability to analyze and process the heaps of data available.

I have been begging my clients with strong parts departments and weak UV departments to switch the two positions. Let your strong Parts Manager, who makes emotionless decisions based strictly on data all day run your UV department. The best Parts Managers understand that turns = profit. I know it’s a bit more complicated than that, but let’s consider this elementary example of a single space on your UV lot. The chart below illustrates the effect on profitability of simply turning your inventory more frequently while taking less front-end gross per unit on this single space. We are not considering holding cost, just total gross.

Turning One Additional Space in Your UV Lot

Option 1:
Unit 1 Unit 2 Unit 3
120 Days 120 Days 120 Days
$4,000 Gross $4,000 Gross $4,000 Gross
Option 2:
Unit 1 Unit 2 Unit 3 Unit 4 Unit 5 Unit 6 Unit 7 Unit 8 Unit 9
40 days 40 days 40 days 40 days 40 days 40 days 40 days 40 days 40 days
$1,500 Gross $1,500 Gross $1,500 Gross $1,500 Gross $1,500 Gross $1,500 Gross $1,500 Gross $1,500 Gross $1,500 Gross

Let’s say average F&I is $1,500, reconditioning is $1,000, and the doc fee is $400.

Option 1: Gives you $12,000 front-end gross, $4,500 F&I gross, $1,500 labor and parts gross (after paying tech and parts cost), and $1,200 in doc fees. That’s $19,200 total plus a potential of three trade-ins.

Option 2: Gives you $13,500 front-end gross, $13,500 F&I gross, $4500 labor and parts gross (after paying tech and parts cost), and $3600 in doc fees. That’s $35,100 total, plus six additional trade-ins.

Additional Bonuses from Option 2 

On top of all that extra profit, you will also gain six additional customers in your database, who can potentially return for service and future vehicle sales (on top of referring more customers to you). Additionally, your sales and F&I teams are making more money—making them more loyal and happier to be at work. Plus, you have more customers walking through the door, adding to the excitement and energy in your dealership.

So now that we have done that math, I’m sure you’re excited to cure the UV gut going on in your dealership. If you are looking for some additional help on improving your turn rate, the NCM Institute and their UV courses are currently writing prescriptions.