Having been directly involved in the retail automobile business for nearly 40 years, I have come across a myriad of “better mousetraps” and so called “magic pills”. If I had a dollar for every time a vendor told me that “all you have to do is sell one more car to pay for it”, well, let’s just say that we have all heard that before. The truth is, as it relates to the new and used vehicle sales game, it’s all about retail turnover. It always has been and it always will be.

The question then becomes, how do we increase vehicle retail turnover? We can spend more money advertising. We can pay extra commissions. We can price our inventory on the internet to be the most attractive in terms of a price search. We can lower our grosses. We can try to reach out to a broader base of prospects. We can also wish, hope and pray. These are not the solutions I advocate.

Have you ever wondered how one of your competitors always seems to be able to deliver more vehicles than you? Or how someone in your “20 group” was continuously selling 1 to 1 (or more) used to new? Or how they grossed more per unit than you? Or how they were able to experience little or no “wholesale pain”? It’s all about the turn. We all know that the “quicker turners” gross more. That goes for both the new vehicle department as well as the used. This is no secret.

I recently completed an exhaustive study of all of the ramifications inventory decisions can, and do, have to the dealership’s bottom line. Many things were clearly revealed and confirmed by the data as a result of the study and the following list is not intended to be a revelation, nor is it, all inclusive.

*Quicker turning vehicles gross more per unit on both the front end and back end

*There is a direct correlation between age and gross

*Gross almost always goes up as availability goes down and the opposite is also true

*Sales compensation in real dollars and as a % of gross, goes up in direct proportion to vehicle age

*Many Specific Years, Makes and Models, sell faster than others

* More inventory does not necessarily mean more deliveries

*Salespeople tend to lead prospects to the “freshest” inventory

*Dealers advertising dollars are largely spent on their slowest moving inventory

*Seasonality, special events and incentive programs are here to stay

*Forecasting sales is very unpredictable and is usually optimistic and inaccurate

Back to the original question then, How do we increase retail vehicle turnover?

One of the best (and this one is free) methods to increase retail vehicle turnover is by installing and following (every day) a stocking guide. One of the many functions of this stocking guide is simply measuring the cost of sales of the units we are delivering versus the remaining inventory by sales segment and individual model years within each segment. I like to use the following eleven sales categories and the 8 most recent model years within each category. The categories are: Small Car, Sporty Car, Mid Size Car, Full Size Car, Small Truck, Small Sport Utility, Large Truck, Large Sport Utility, Mini- van and Van. When you clearly know how many and what the cost of sales of the vehicles are that are “burning gas” is and then compare that to your “ground stock”, you will have an exact idea of whether you are long or short in that model year and segment in either units, ready money or both. Your sales pace earns you a stocking guide number in both unit count and average cost of sales. It then is simply looking at your actual inventory versus your ideal (guide). The action required to “get into balance” is clearly apparent.

As an example, if your number one gross revenue producing sales segment is mid size cars and your best performing model year and quickest turner is 2006 within that segment and the average cost of sales is $8,200, then it stands to reason that your inventory of vehicles in that segment and model year needs to be as close to $8,200 (lot ready) per unit as possible. The sales pace and number of units sold in that segment determines your “stocking guide”. The closer your inventory is to the cost of sales of the vehicles that you are selling, the more active that inventory becomes. Conversely, the further away from the $8,200 target your inventory is, the less active it becomes. Another use of the stocking guide is when it comes to appraisal time. If, for example, you happen to be offered a trade that is a 2006 mid size car but is worth around $14,000, get a buy figure on the unit that is good for at least 10 days, trade for the vehicle, try it out on the lot for those 10 days and if it isn’t gone in those 10 days, cash it. This will allow you the opportunity to try other vehicles without the risk of wholesale pain. Ultimately, you will find the ideal inventory in both the number of units you need, as well as the cost, for each sales category and model year. I strongly suggest aiming for a target of a 37 day supply of units and a 37 day supply of dollars in each sales category and model year. (the unit days and dollar days calculations were covered in a prior article and I will be happy to send it to you upon request)

It will soon become evident that there are some sales categories and model years that just do not make sense to participate in with an inventory investment. You will also find that by maintaining 37 days worth of units and dollars, there will be categories and model years that sales grow rapidly in. And finally, you will also be able to find the point of diminishing returns in each sales category where more, does not necessarily mean better. (the point of diminishing returns)

I have developed a simple Excel spreadsheet “stocking guide” tool that you can use to accomplish this (no charge or obligation) and I will be happy to send it to you upon request. Simply send me an e mail asking for the used vehicle stocking guide. The “feedback” that this type of simplified inventory management system will provide you will become invaluable.

Part of the reason Wal-Mart has become the retailing Giant that it is, is due to strict adherence to the basic principles of inventory management. Monitor demand, measure movement. Make decisions. You will rarely find any of their shelves empty or overstocked. If it is a good producing, quick turner, they gradually increase their stock until they find that point of diminishing return. (where more does not equal better) If they have tried it and it doesn’t work, they forget it and move on and try something else.

If you will take the time to implement this type of system, (or any of the available vehicle inventory management systems, mine included) you will increase your total Used Vehicle Department’s gross profit more than you might imagine. The bottom line is that when customers leave our individual Used Vehicle car lots without purchasing, it is almost always because they did not see what they truly were looking for. (Sometimes they will not even get out of their vehicle and just do a “drive by”.) Remember, you cannot be all things to all people and it is impossible to stock everything. When your Used Car lot has more on the ground, of what your customers are looking for, what do you think will happen?

Today’s technology gives us all the opportunity to make more intelligent decisions, more accurately and faster than ever before. Literally, with a few clicks of your mouse in the right program, you can get all of the information you would need to make a better inventory decision. While it is impossible to predict economic swings, natural disasters, terrorist activities or wild fuel price fluctuations, you can phase in a “more active” inventory. Ask yourself this question. Am I confident that my managers are using all of the tools and data available to them to make the very best possible inventory decisions?

It has been said by many different professionals that the first step to recovery is to admit you have a problem. This step is often the most difficult one to take as it involves an admission to oneself that somehow, someway, we have failed. As car people, we always want to do better and being of the optimistic breed, we all believe we will do better, even when repeated results keep staring us directly in the face, month after month. Is your inventory the problem or the solution? Do your managers really use an inventory management system? If not, why not?

Scott Dreisbach-Vice President
Valuinsight, Inc.
561 368 7810 X 108 (direct)
sdrize@valuinsight.com
http://www.valuinsight.com