What does it mean now that auto sales are categorized as essential, and lights can go on and doors can open? What it doesn’t mean is business as usual. Everyone is faced with a new challenge: How do I operate profitably during this transition to “normal?”
In this 3-part blog series, we will share some tips and considerations for dealers as they prepare for major reductions in showroom traffic, lower marketing budgets, and limited staff.
The good news is that dealers shouldn’t throw in the towel and chalk it up to a bad 2020. Retail operators that are able to successfully navigate this crisis will not only pull market share away from their less effective competitors but position themselves to succeed for many years to come.
Blog Series Part 3 – Get A Strong Inventory Game
Inventory Management: What to buy and how long to keep it.
Many dealers are sitting on a lot full of used car inventory that is worth substantially less than their cost basis due to the recent drop in wholesale prices and lax, or non-existent, vehicle aging policies. Truth be told, the pandemic only exacerbated an existing problem -- many dealerships haven’t remained disciplined in enforcing their vehicle aging strategy.
A strong wholesale market in recent years has decreased vehicle depreciation risk and allowed Used Car Managers to justify holding on to statistically slow turning vehicles. Those strong wholesale values also propped up retail prices, which gave dealers a false sense of security that they could come out ahead if they could just “break out” of an aged vehicle by “wholesaling it to a retail customer.”
If a SAAR of 11 -12M is accurate, dealers must plan for a highly competitive market with less consumer demand for the rest of 2020. Maintaining discipline with your aging strategy is about managing your investment in used vehicle inventory, similar to the way you manage stocks in a portfolio. The difference is, in the used car game, a vehicle’s recent past performance IS a good indicator as to how well it will likely perform at your store. A disciplined aging strategy ensures you don’t tie up $20,000 in a stock that makes you 2% annually for too long, when you could put that cash toward an investment that generates an 8% annual return, with less risk!
Used Car Managers will need to ensure they not only have a disciplined turn strategy, but they are buying the right inventory for their store. Dealers must look to market statistics to determine which vehicles in their area are in short supply, turn quickly, and are capturing market share and buy accordingly. The challenge? You aren’t the only savvy dealer that looks at market data and DMV registrations to stock their inventory. Leverage platforms like CarOffer, or auctions in other states, so you can have a chance at purchasing that high-demand SUV with a 20 day market supply from an area where it’s well-stocked and in less demand.
Those that embrace the fundamentals of managing their operation and remain disciplined will survive this crisis. But those that reinvent themselves, adopt new technologies and processes, and remain flexible to market needs and consumer demands, will be positioned to be successful for decades to come.
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Author: Nick Gerlach, CarOffer VP of Dealer Relations | Follow Nick on LinkedIn
As Vice President of Dealer Relations at CarOffer, Nick Gerlach brings experience, expertise and thought leadership with his 10+ years in the industry.