In the used vehicle business? Want to or not, most dealers are. Manufacturers have their hand in it as well, controlling the dealer to some point on selling and marketing certified pre-owned vehicles. Whether CPO or non-CPO vehicles are being sold, the primary working model remains the same…quality inventory beats quantity, every time.
Many dealers use a data model such as VAuto, Car Gurus, Liquid Motors or VinCue to assist in developing the models and equipment to stock in inventory. These data trackers are a great tool, but not the be-all and end-all in developing a quality mix of units to carry in stock. The best inventory mix would be an investment in vehicles that sell the quickest with the highest front-end gross profits and be able to generate robust back-end sales, specifically in finance and extended service contracts. Create a report that looks back around 16 months to trace the following elements: days in stock, gross profit, model and option codes, color, CPO/non-CPO, and perhaps add beacon score and down payment for all used vehicles sold. It may be surprising to find that in some cases; the best sellers were not necessarily CPO units. The beacon and down payment data help in determining the demographics of the most profitable customers.
The tools mentioned above are quite good at the pricing matrix on a real-time basis, but not all of them necessarily manage the inventory mix model. This data should come from within the sales history files and should be run and updated frequently. This data should produce the matrix for inventory purchasing and balance. By stocking the vehicles that generate the lowest days in stock and highest gross profits, the inventory balance should produce high inventory quality that has a faster turn rate, lower days’ supply, and lower cost of maintaining the inventory. It is recommended that those in charge of acquiring the vehicles also be paid for performance; not just for buying, but for buying correctly. Rather than a fee per unit acquired, have a performance-based pay plan that allows for the participation on the retail side. And lastly, establish a holding period. The vehicles are inventory to be sold, and fast; develop an ‘up and out’ policy for aged inventory, not just a write down program. At a certain age of days in stock, the vehicles need to be wholesaled, without “bruise accounts” or other offsets. If the loss is real, take it, keeps the inventory at realizable value. There is no reason to postpone problems as that only tends to keep the same conditions present without fixing the reason they exist.
There also comes the time to decide whether a specific vehicle should be a CPO or a non-CPO inventory item. Some dealers opt for only CPO units in stock, while others desire a broader selection of product to offer their customers. Some successful used vehicle operations also sell brands other than their own. Ensuring that the product knowledge is well versed in the sales personnel, the inventory is purchased at the right price and presented well to the customers, the dealer can be quite competitive with franchised dealers even without the ability to offer manufacturer approved CPO units.
In addition to stocking vehicles for an optimum balance, getting the vehicles ready for sell now condition is just as important. Notwithstanding the confines of a CPO program, it is essential to establish a ceiling for reconditioning costs based on a highest tolerable figure or on how good a deal the vehicle was acquired for even with a high reconditioning cost. This is a type of algorithm that cannot be programmed and takes a seasoned used vehicle expert to make these decisions. One idea is to establish a pay plan for the get ready technicians to get the inventory to front-line ready in the quickest time possible and in top saleable condition. Consider establishing a bonus system for putting the vehicles out of the shop and onto the lot.
In summary, good buying habits to maintain an optimum balance of quality inventory, coupled with incentives to ensure that the vehicles are front-line ready to sell will improve gross profits, inventory holding expenses, and customer satisfaction.
About the Author
Ken Rosenfield began his career at a large national CPA firm in Denver, Colorado in 1980. After volunteering to work on the office’s lone Automobile Dealership client, a love for the industry was born. Since then, Ken has worked with over 500 dealerships across the nation including some of the largest automotive retail groups in the Country. Ken is a former owner of a four-dealership group and an extended warranty company. He has also served on the Board of Directors of a number of Automotive Retail Organizations. His firm’s automotive practice is one of the largest in the nation and is international in scope. Since relocating to Florida and founding Rosenfield & Co, PLLC in 1996, he has grown the firm to specialize in a number of industries. Ken expanded from sole proprietorship to one of the largest CPA firms in Central Florida, growing even more in recent years to open an office in New York. EMAIL: [email protected]
