Used Vehicle Management — It's All About Inventory!

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The used vehicle department is the one most often ignored, misunderstood and consequently mismanaged in the dealership. The success to any used vehicle department boils down to two things:

  1. The inventory you have; and
  2. How well you sell it.

It starts with a competent used vehicle manager — one who knows how to manage these two areas. In this issue, we take a look at the importance of inventory management in this area.

Probably the most important aspect for the used vehicle department is good inventory control.

Know your market — Analyze your sales trends and compare them to vehicles in your inventory. Consider makes and models sold and price range of vehicles sold to determine what inventory is right for your market.

Perform detailed and accurate appraisal on all used vehicles — These should be performed on all used vehicles whether purchased or traded-in. A standard checklist will ensure the appraisals are completed consistently and accurately. Do not adjust appraisals to make new-car deals. Consider developing a pay plan dependent on the total gross of both sales departments for new and used sales managers to avoid conflict between the two.

Swift decision to retail versus wholesale — Wholesaling is used primarily to get your costs back quickly and to invest your money into other more saleable inventory. To help you decide, you need to evaluate whether:

  1. You can retail the unit quickly (30 days);
  2. The unit sells well in your market; and
  3. Your salespeople can sell the unit profitably after reconditioning costs.
Recondition vehicles intended for retail sale — The goal of reconditioning is to improve the appearance and operation of a vehicle:
  1. To attract customers;
  2. Move vehicles quickly;
  3. Improve the gross profit per vehicle;
  4. Improve the dealership image; and
  5. Comply with legislative requirements.

If not reconditioned properly, used vehicle inventory displayed for sale will not achieve this. However, try to adhere to the appraisal amount. Look into variances and try to avoid errors and omissions in future appraisals.

Turn your inventory every 30 days — The decision to keep a vehicle for retail sale should take into account whether it can sell for a profit within 30 days. Successful used vehicle departments sell their vehicles within 30 days. If your vehicles sell on average every 30 days for an average gross per vehicle of $1,000, keeping a vehicle for 90 days or more to earn a gross of $2,500 has cost you $500 just in lost gross potential, not to mention any additional costs you may have incurred to dispose of an over-aged vehicle.

Consider low-end vehicles — Your loss exposure on any used vehicle is its cash value. The average gross reflects the amount of profit you try to achieve when selling any used vehicle. You'll be surprised at how profitable this end of the market can be. Say your average cost per unit is $10,000 and you sell each for an average of $1,000 profit. If you were to invest $50,000 on 10 units at $5,000 each and sell each for the same average totaling $10,000 gross profit, you will achieve a 20 percent return. Had you invested $50,000 in higher priced units, you would only purchase 5 units and earn a total of $5,000 gross profit giving you a 10 percent return.

Eliminate over-age inventory — Perhaps the most often used and effective practice used by successful used vehicle departments is the revaluation of older units in stock by reducing the cost of your oldest used vehicle in stock by $100 for each used vehicle added to inventory until the vehicle is sold. Advantages of this practice is:

  1. Your older vehicles will be sold more quickly thereby allowing you to invest the money into more saleable inventory;
  2. Additional incentives to move these vehicles are rarely required; and
  3. Vehicles are no longer sold at little or no profit that increases average gross. These are achieved without affecting the overall used vehicle inventory value.

Ensure your inventory is in saleable conditions — Have each of your sales staff drive a different unit every day and have them report deficiencies to you. This will result in regular inspections of your inventory and allow sales staff to familiarize themselves with your inventory.

Saleable inventory and staff who know how to sell it are keys to a successful used vehicle department.