Successful Inventory Management: Acquiring Profitable Vehicles

August 2007, Auto Dealer Today - WebXclusive

by Ryan Linnehan - Also by this author

Last month, we began looking at ways to maximize one of the two largest assets that Buy Here Pay Here (BHPH) dealers possess – Vehicle Inventory. In that issue, we focused on ways to avoid purchasing the wrong vehicles. This month, we will concentrate on how to find the right vehicles and also review some tips on where to locate the units that will be most profitable.

We’ve mentioned many times that one of the great aspects of the BHPH industry is there are many different business models that can be successful. If you were to ask each member of a 20 Group what their perfect vehicle to sell is, you are apt to get 20 different answers. However, there does seem to be a consistent common thread among most successful dealers, and interestingly enough, it hasn’t really changed since the early days of BHPH.

Probably the term “family vehicle” is the best way to describe these vehicles. When BHPH was in its infancy, we were dealing with full-sized sedans and station wagons. Nowadays, it translates to minivans and SUVs, yet the principle remains the same. The best combination of quality vehicles and quality customers seems to converge around family vehicles. Of course, it makes sense that family vehicles would be the best type of vehicle to stock, as most dealers would agree that working families tend to make the best customers. On the other hand, sports cars may attract customers to your lot, but will they attract quality BHPH customers? 

Another consideration when deciding what inventory to carry would be not just what sells quickly or what attracts the right customers, but also trying to stock vehicles that will not require expensive repairs. This oftentimes results in BHPH dealers focusing on domestic vehicles, or as my brother likes to put it, “No makes that end in a vowel!” Our experience has been that since most imports can be more costly to repair when they break down, they tend to cause more financial hardship on our customers and then ultimately for us!

Once you decide what type or segment of vehicle you want to target, where do you find enough of those vehicles to supply your operation? Well, if you are fortunate enough to be affiliated with a new car dealership, trade-ins obviously make a great source. If not, it would be worthwhile to go make some personal visits to the local new car dealers who are not involved in BHPH and develop a relationship that will allow you access to the trade-ins they don’t want to deal with. Pay them a fair price, and they’ll probably be glad to save the transport and auction fee, as well as the “hassle of disposing” of it.

Obviously, you can always purchase inventory at auction, and while other articles have probably covered how to optimize the auction experience, let us share a couple of quick tips from our experience. Know who you should buy from, and more importantly, who you shouldn’t. You are better off to pay a little more bidding on vehicles from someone that is honest than getting a “steal” from someone who is on the shady side. Also, if you have the option to take advantage of a post-sale inspection provided by the auction, “Just Do It!” We have definitely found that to be money well spent. Depending on which auctions you attend, the vehicles may not be run “green light”, but if so, and the auction offers this service, it can be a great tool for you as a buyer, especially if you aren’t able to bring someone to road test vehicles immediately after purchase.

Another inventory acquisition idea we use periodically is running an ad in the auto classifieds with a big headline that says “THE BANK”, telling consumers that we are looking for vehicles and will pay cash for them. The only downside is getting calls from people buried in their trades, but for whatever reason, we get a lot more calls from “THE BANK” ads than from a standard “WE BUY CARS” ad.

An additional benefit is that sometimes those calling to sell their vehicle really want to trade their vehicles, so not only are we able to purchase inventory, but we can also generate sales from the ad.

Now that you have some guidance on what not to buy, as well as what to buy and where to buy it, next issue we’ll delve into how to utilize your inventory to maximize your net profit and cash flow, which we all know is crucial in BHPH.

Vol 5, Issue 7

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