Article

Seven Sure Methods To Eliminating Aged Inventory

August 2006, Auto Dealer Monthly - WebXclusive

by Harlene Doane - Also by this author

There’s a party happening on your lot? You’re footing the bill and don’t even realize it. The party is a celebration of time. You know what I mean; your used vehicle inventory is aging right before your eyes. Your staff knows it. Watch them walk around the older units and go for the new units. It’s like teenagers and babies. How many people do you know gravitate toward teenagers when there is a baby around?

You pay for this party in the form of higher expenses (floor plan, maintenance) and lower gross profits due to market changes. So how do you stop the party and maybe even recover some of your cost through retailing out of these aged units instead of wholesaling?

Here are a few ideas that have been submitted to AutoDealerDaily.com.

Red Tag Sale
When any inventory hits three months old, use the Black Book to establish a low "Blow-Out" price to the market. Make them "No Haggle-Discount Prices". Advertise them on your Web site as well as including them in your print media with the tag line "No Haggle-Discount Price." Mark the units on the lot with the red tag so that everyone knows which ones they are.

 

Pay the sales staff a flat spiff on the units starting at $100 and climbing to a maximum of $400 depending on the age of the unit. This allows for quick disposal of the unit while allowing the opportunity to make a back end profit instead of wholesaling out of a unit.
--Chuck Parker

Responsibility

As a retail piece is traded, the salesman that is responsible for the trade has his name on the stock sticker, and he is responsible for that trade as it comes into inventory. If he sells that car, his commission reflects an additional flat or an increase in percentage of commission. If someone else sells it, he has to split the commission.

This holds the sales rep accountable for the vehicle traded. They have a vested interest in making sure it sells quickly.
--Tim Sethna

Listing Agents

Review your inventory to calculate the amount of adjustment that it would take to bring your aged inventory back to market prices. Instead of making the adjustment take a percentage (50 percent) of that and set it aside for the following month long promotion bonus (make sure whatever amount you chose can be divided evenly by the number of units and then evenly by three. Example: $1,500 divided by 10 aged units is $150, which divided by three is $50.

Put each aged vehicle on a separate card and drop them into a hat. Each sales person draws until all cars are gone. For each card drawn the sales person becomes the listing agent. Every time one of their vehicles is sold they receive a listing fee equal to one third of the per unit bonus ($50 in our example). Every seller receives a selling fee equal to two thirds of the per unit bonus ($100).

The sales staff will go to great lengths to ensure that their “listed” vehicles are sold as quickly as possible, and you will have the opportunity to actually retail out of the aged units profitable even after paying the bonuses.
--Anonymous

Rainbow Disposal of Aged Inventory

Buy round stickers in nine different colors. Stick them on the lower left hand corner of the back glass. The first month is white, and then each month afterwards used the rainbow-sequence that was taught in school - ROY G BIV (Red, Orange, Yellow, etc).
Every month after the current month the cars get an additional $25 bonus. It is easy to remember the order of the colors, and the sales people are always focused on the older vehicles in stock.
--Neal Weinstein

Adaptation of Rainbow Disposal

Start it on 90 day old units. Spice it up by having "hidden spiffs" on some specific vehicles on a Saturday for only test driving a vehicle. The salespeople never knew which ones have the hidden spiffs on them, so as a consequence, almost all the tagged vehicles would be shown.
--Andy von Busse

Used Car Manager Inventory Incentive

No one wants 90-day-old units on the lot, but it is a constant battle to eliminate them. One way to help eliminate the problem is to give your used car manager a raise; a raise based on inventory control. Set an amount, for simplicity sake in our example, use $12,000 per year or $1,000 per month. At the beginning of each month the used car manager has the $1,000 available to be paid at the end of the month. However at the end of the month each unit that is aged is deducted from the $1000.

Any unit more than 90 days old cost $100
Any unit 91-110 days old cost $150
Any unit 111 days or older cost $200

Vehicles must be delivered or wholesaled and paid for by the last day of the month. You can set the dollar figures for each component, as well as the age to fit your dealership.

It keeps your Used Car Manager focused on the aged units and will cost you less in the long run than if they aged out and you take a bath at the auction on them.
--Anonymous

Inventory aging commission

Keeping your sales staff focused on aged units is tough. Instead of putting large spiffs on ancient units, put an ongoing bonus on aging units.

$2 per day for every day that a used vehicle is on the lot beyond 60 days.

$2 per day for every day that a new vehicle is on the lot beyond 120 days.

You can set the per-day amount and days in inventory at any level that works best for you. It keeps the staff constantly focused on older units since this is bonus money on every deal even on mini deals.
--Anonymous

Maybe by implementing one or more of these, you can keep your unintended celebrations to a minimum at your dealership and add gross profit back to your bottom line, which is a real reason to celebrate.

Vol 2, Issue 6

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