Used-Car Success for the Small Franchise
Napa Ford Incorporates Inventory Management
Napa Ford in California might be a small dealership, but with it's quality used cars and the right inventory management, they are proving to be a very successful franchise.
Being a small franchise dealership comes with certain disadvantages, like limited access to new vehicles. At Napa Ford in Napa, Calif., Jim Carter, marketing manager, said the store can never get enough new vehicle inventory. “When we could sell Fiestas, we couldn’t get any. Hybrid Fusions were virtually non-existent to us. We could have sold a lot more new vehicles, but the inventory wasn’t available,” he said.
He continued, “It’s tough being a small dealer against a big dealer. You’ve got to offer something different. Otherwise, you’re going to get eaten up. We can’t stock the inventory that a big dealer does in new vehicles, and we cannot compete with the discounts they offer.” So he and the other managers concentrated on growing in an area where they had more control: used vehicles. Carter said, “We focus on where we can get the best return on our investment, which is of course offering a quality used vehicle.”
Since the beginning of 2012, the store has improved used vehicle operations considerably. At the beginning of February, the dealership took, on average, 79 days to retail a used vehicle. By late May, Carter said the store improved the average days in inventory to 38. “We were getting about six inventory turns a year … but if I can turn my inventory faster and I can get eight inventory turns in a year, that’s a big impact to our bottom line. You’re talking hundreds of thousands of dollars.” He added that he expects the store to achieve eight inventory turns this year.
However, that doesn’t happen overnight or without considerable effort. He attributed some of his success thus far to implementing and using the inventory management tool by RedBumper to help buy and price inventory. “It tells us the cars to buy … so that has helped dramatically.”
It also makes market-specific recommendations regarding which vehicles to buy, but is not always the final word on which vehicles to buy. “In some cases we buy something that’s not recommended because we see it as a potential for our market if we can buy it for the correct price.” He made sure to emphasize that having a tool to help manage inventory isn’t enough; dealers must use the tool too. “The biggest problem is … car dealers buy something, but they don’t use it to its full potential. … I go to it first thing in the morning and look at pricing [to] make sure everything is priced accordingly to the market.”
Regarding inventory management tools, some dealers argue that although these tools help dealers sell more vehicles, they cut too deeply into gross profits. Such is not the case at Napa Ford, considering the store’s front-end gross has improved by $900 per car since implementing the new inventory management strategy. “We’re happy, happy campers,” said Carter. “Our gross is above the national average [reported by] NADA, and our F&I gross is as well.”
In addition to the increase in gross, the dealership is moving almost twice as many used vehicles. Two years ago, the dealership averaged 15 to 20 used vehicle sales a month. In March and April 2012, the store retailed 30 and 33, respectively.
For about a year now, the dealership has relied solely on online auctions to fill the lot, which typically has 50 to 55 used cars on it. Carter, who handles the buying along with the store’s general sales manager, said, “We don’t waste our time going to the auction anymore. We’re 100 percent online.”
However, they still put a lot of time into buying online. “We spend hours getting everything organized for what we buy … We check everything through AutoCheck to make sure we never buy a car with accidents or a questionable title.” They also compare vehicles they’re considering to market availability and pricing.
Once vehicles are purchased, Carter dispatches dealership personnel to pick up those within a 100-mile radius; for vehicles outside that radius, he works with a transport company to truck them in. “We try to buy as close as possible,” he said. Buying close so he can send employees to pick up vehicles is advantageous for a couple of reasons. One, the cars usually arrive at the dealership within a day, compared to the five to six days it can take via truck, and two, transport via truck is more expensive.
When the cars make it to the lot, it’s time to run them through service, which is another area Napa Ford has been working on improving. Carter said, “We want the cars through the service department faster.” Previously, it took up to 10 days to get some cars through reconditioning because the service department would put retail work ahead of internal work, which he said was sometimes reserved for when service technicians had nothing else to do.
He explained, “Most service managers think customer-pay is everything, but [the used car department is] their biggest customer, really … So we had to change the mindset of the service department.” Now, the maximum amount of time a used vehicle is allowed to be in the service department for recon is four days.
To help with this streamlined process, the dealership now has two service technicians whose jobs consist solely of reconditioning used cars. All the ROs are written before the vehicles get to the dealership, “so as soon as [a vehicle is] … on the lot, it’s taken directly to the service department with the RO.”
At Napa Ford, vehicles are reconditioned to top-notch condition. “[The] average [recon] expense in our store is running about $1,200 per car. It’s higher than most, but … we not only offer Ford-certified, but we offer the majority of our cars with a Motor Trend certification,” said Carter, who feels that it’s better to spend a little more money up front rather than have unhappy customers coming back with issues. “We like certification [programs] because your grosses are better, and secondly, we have less customer complaints.”
When evaluating trade-ins to keep and retail, the store typically keeps Fords and Lincolns that have low mileage and are in good condition. He said, “If we know the history or service reports on it, we can get more money for that type of vehicle. It’s got to be a clean vehicle, no accidents.” He added they’ll keep a vehicle with higher mileage if they know the service record and that it’s been well maintained.
Once reconditioning is complete, vehicles are sent back to Carter, who puts the final touches on them before they roll onto the lot. He adheres buyer’s guides and window stickers and takes photos of all the used vehicles. Regarding photos, he said the magic number of photos per vehicle to have online is between nine and 16. However, for specialty vehicles, he’ll sometimes take up to 35 photos. “What we’ve found out on photographs is nine is the minimum you want to take, on an average car; nobody wants to see more than 15 or 16 [photos]. If you’re selling … a high-performance vehicle or a unique vehicle … [those] need more photographs.”
To ensure quality photos, he uses a Cannon Rebel camera, which currently costs about $500, and he runs all photos through Photoshop to ensure the pictures are top-notch and make them look uniform. Carter also likes to use Photoshop to ad layers to the photos to include the dealership name, phone number and to allow the shopper to know if it is a Ford, Lincoln, or Motor Trend certified vehicle. This process ensures the same quality of photo regardless of which web site they are loaded on.
Vol. 9, Issue 8