Just about everyone has an aging pre-owned inventory threshold, whether it's day 45, 60 or 90.
Most dealers have a policy in place in which they state the age (in days) that they would like to dispose of a slow-turning unit. And understandably so: it's no secret what time does to your profit margin.
Here at CarOffer, we have the solution for your aging inventory problems, so that you can quit holding onto old stock and sell more vehicles— cars that consumers actually want.
The Reality of Your Watering Inventory
In a recent market report released by Blackbook, a segment of the used vehicle market depreciated as high as 0.77% in a single week! That equates to a monthly rate of 3.34%.
One week aside, most agree that a used vehicle depreciates by about 1.5% per month. Using that assumption, by the time a $25,000 used car gets to day 90, it has depreciated by roughly 4.5%, or $1,125.
Compound that with an average floorplan expense of $375 over that same time period, and that used car has lost $1,500 in profit before you have spent a dime on reconditioning, salaries, other overhead, and that “old age spiff” you paid your salesperson to sell it.
As leaders, we all seem to understand this profit loss, but why do we still hang on to cars well past our stated aging threshold?
It's not a simple answer. As an owner, the aging policy is one that is widely believed in. As a Used Car Manager, you understand and preach its benefits as well. But when it comes down to execution— that's when things get painful.
At day 90, you have a vehicle on your hands that has lost $1,500 in profit margin, plus $800 in reconditioning, and often has a pack of anywhere from $100 to $2,500. As a Used Car Manager, if you make the decision to get rid of that car, you feel the pain in more ways than one.
First, you are likely paid off of your store's operating profit. So, selling that car at day 60 or 90 may mean that you are losing $4,800, which means a big chunk of your paycheck just flew out the window. In your eyes, your only option is to try and "retail your way to glory."Every once in a while, that gamble has paid off. More often than not though, it simply doesn't work and you end up with a big loss on your hands.
Secondly, if you just wholesaled that car at day 90 and took your first loss, guess who may just round the corner wondering who overpaid for that trade-in or P-car: your General Manager or owner. And because 90 days of depreciation, reconditioning expense and floorplan interest are all factored into your margin, it looks like you just made a big mistake.
Used Car Manager Can't Win
The UCM simply cannot win; unless, that is, he has a plan.
Say hello to CarOffer’s 45-Day insurance matrix. It's a set-it-and-forget-it approach that allows you to identify your riskiest units—or those units most likely to age on you— so that you can automatically place a 45-Day policy on the car before the vehicle depreciates and accrues floorplan interest over the next 45 days.
The best part? You're in complete control the entire time. Just set your desired turn rate, days supply, 45-Day Guarantee-to-MMR ratio and the age that you would like to apply the policy, and it operates automatically.
Sold a vehicle the day before a policy was added? No problem, you have 3 days of grace to disable the policy once it's added.
Worried that you don't or won't have enough inventory? We can help with that too. As part of our Buying Matrix, we can help you source not only your core (same make) units, but also vehicles that, based on your sales history, turn the fastest and generate the highest average profit per day.
Lastly, we have access to sales data within your market area and can help you source and grow your inventory in exactly the same way by identifying the vehicles that you aren’t currently sourcing— that are turning quickly and have the lowest market days supply. That's how you grow your footprint and capture a bigger slice of your used car market.
45-Day Guaranteed Offers with CarOffer
Would you rather have a $25,000 used car on your lot that took 180 days to sell, that you passed to a sister store every 60 days and "marked to market (e.g. wrote down)?" Or, would you rather sell six $25,000 cars that took 30 days to sell? You would probably pay a premium for those fast turning vehicles. Our Buying Matrix can help you find those cars.
The reality is, a car that gets to day 90 is more likely to get to day 180, as it is simply a less desirable unit... at least in your market. Consider this: many of the biggest used car operators have average turn rates in the teens. How do you stack up?
We are confident that our tool will help you achieve a guaranteed 45-day turn rate, minimize your wholesale loss and win more trades.Test drive our dealership software for yourself by requesting a demo today.