The Three Legged Stool of Inventory Turn – Part One

In my nearly 25 years of consulting with car dealers, nothing comes up more often than how to turn the inventory faster. As margins continue to compress and competition from other channels (ride share, so on) becomes even more intense, this is more important now than ever.

So what does it take to make your cars turn faster? How do you get there from here?

The first thing is to make sure you understand the absolute need to turn your inventory. If you still think it doesn’t matter when you sell the car, there are some other rudimentary understandings that are missing. You need to read Dale Pollak’s books on Velocity and probably use the turn calculator I built at www.makingitpencil.com to see what the impact is on your bottom line in different scenarios.

But let’s assume that you already agree that inventory turn is the key to profitability, what can you do to impact your turn?

While there are a lot of factors that go into this, I have broken them down into three areas that are crucial to inventory turn. Like a three legged stool, take any of these three out and you will have an aging problem to be certain.

So what are the three legs of the stool?

Inventory Selection

This sounds self-evident, but you have to stock cars that people actually want to own and ideally are searching for. You’ve heard is said that “money is made on the buy” and that is true, but not the way you probably think about it. When most dealers say this, they mean “don’t pay too much” and that is correct. But the reality is that even the car you purchase way back of book will cost you money in the end it you can’t sell it reasonably fast.

So what the heck am I talking about here? I’m talking about the overall desirability of your car. Autotrader calls this scarcity, vAuto will reflect it as Market Days Supply and others will have their own metrics, but in the end we are talking about how much interest there is in the car.

Let’s do a thought experiment. What if we could park all of your cars at the main exit to a local stadium, 10 feet apart, so that all of the people leaving had to pass by your cars to go home. Would they all draw the same crowd? Would you have some cars that have a lineup to see them, while others are left completely alone or with the only people looking at them just killing time waiting for the “good car” to be free? How about at the AutoShow where all of the cars are new? Same thing right? Not picking on any models or OEM’s here, but if you have a lot full of Pontiac Montanas you are in a very different situation than a lot full of Subaru or Toyota products. Agreed?

Each car you select has either a larger or smaller natural audience right? There are more searches for Ford Escapes than for Hyundai Azera’s. This isn’t an evaluation of the car, but of it’s reputation in the market, most of which is entirely out of the dealer’s hands. How well did the OEM support the model? Were there major issues or scandals (think VW TDI)?

Pick all the wrong cars and nothing else will matter very much. Even the right cars in the wrong configuration can be a mess. Do you really want a manual transmission Camry? There have to be people who will want to own those cars. The more rare prospective owners are the longer it will take to sell the car.

One last example on this.

You buy a perfectly maintained “service body” Silverado with tool boxes, roof rack and so on. You know you bought it right and you put it on the money. Does it sell fast? Maybe. The problem is that there is a limited number of buyers for that truck to start with. You take all of the people buying vehicles, now just pull out the commercial truck buyers. Then just the service body buyers (Garage doors, gutters, siding, framers, HVAC, plumbers) the slice just got thinner no matter how right it is. Solution, spend for more advertising. Cast a wider net. Put it on Truck Trader, maybe eBay or Craigslist in multiple cities. You have to pay to increase the audience, or wait a lot longer for the local buyer to have a need that your truck meets. Or you discount it to make it go away. same thing with those Pontiac Montanas.

Compare that to a Camry. Silver. Tons of cars, but tons of buyers too. Your normal advertising channels sell this car for you if you are on the money. You have a broad available audience everywhere you turn. Even your drive by may sell this car.

Stay tuned for part two…

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