Managing Inventory; Three Trends On The Rise

May 2008, Auto Dealer Today - WebXclusive

by Harlene Doane - Also by this author

Retail businesses are all about inventory turn. How quickly can the right product (inventory) be delivered and how quickly can it be sold for maximum profit. Dealerships need to be focused on the exact same thing; their inventory just happens to be cars and trucks.

The current trend for improving inventory turn in the automotive industry is the utilization of software to review dealership historical sales data or local market sales data to assist in vehicle inventory selection. Now, there are several products on the market that can analyze inventory data—data that was virtually impossible to compile, much less compare in a reasonable fashion just a few years ago.

Many new vehicle dealers are now using this software, also known as inventory prediction programs, to ensure they are stocking the vehicles buyers want. In some cases, this has caused dealers to say no to a manufacturer’s request to stock more of a poorer selling vehicle. When the facts are presented, even the most intense manufacturer pressure seems to grow fainter. By not stocking vehicles that typically age leading to a general overstock situation, the days supply lowers.

 Current Benchmarks On Days Supply Of Inventory **
Total  Cars  Trucks 
 Domestic 61 63  57 
 Import  55  51  54 
 Highline  35  47  54

A shorter days supply equals faster turns leading to more profitable operations.  The same software is being utilized to purchasing used vehicle inventory (online, off the street or at auction) and even evaluating potential trade-ins. If you have historical data that supports your ability to sell a specific model at better than average profits, you can be more generous in your trade-in appraisal. It eliminates the gut purchase that rots on the lot and replaces it with a scientific purchase that is more likely to sell.

Another trend is the close monitoring of used to new vehicle sales ratios by many 20 group franchise members today. Comparison of dealership used vehicle sales to new vehicle sales provides a ratio that can be measured against benchmarks. Small improvements in this ratio can translate to a significant increase in profits.

Benchmark Inventory Turn Ratio - Used Vehicles to New Vehicles**
  Cars  Trucks 
 Domestic 1.22  .78 
 Import  .72  .26 
 Highline  .69  .08 

Last but certainly not least among current inventory trends is the declining percentage of wholesaled vehicles to total used vehicle sales. Dealers, both franchise and independents, are holding more trade-ins for retail. Some have gone as far as segmenting their lower value trade-in on their lots and marketing it as “Under $10,000 Vehicles”.

The current inventory trends tell us dealers are getting quite serious about running their dealership like any other inventory driven retail business. Get the right product at the right price at the right time and customers will purchase.

**All benchmarks are compliments of NCM Associates and have been provided by Kevin Cunningham, director of business development. Questions, concerns or comments regarding benchmarks or Twenty Group programs can be e-mailed to [email protected]

Vol 5, Issue 3

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