June 2012, Auto Dealer Today - WebXclusive
Back when I started desking deals, the older salespeople would tell me, “Let’s do this deal, and we’ll make up the gross on the next one. It’s easier to get iron than customers.” I believe that attitude changed in 2008, and we are still facing the challenge of finding enough choice inventory without paying far out of book for a decent rig.
Our BHPH operation is different than most. We operate in a niche market where we try to attract our customers away from the big retail store and not just our note lot competition down the street. The program we offer helps with that. We have a low interest rate, extended service plans, GAP, sales tax help and we report to the bureaus. These are good talking points and customers cite them as reasons to shop here, but the vehicles out front are what primarily attract the customers we want.
In BHPH or any DCF operation you have to watch your underwriting and collections every day. Your inventory is almost as important. What we could buy for the money four years ago has changed today. Even with market improvements, there are fewer trades to pick from with twice as many people buying them. What is making it into the wholesale market is less desirable because the big stores are holding onto their used inventory.
With our business model, we have always had to be diligent in our buying, and the challenge remains today. In our operation, we limit our cost of vehicle to $8,500, so the terms we are comfortable with can be consistent for all approvals. We have a complete reconditioning program to make sure the vehicles we sell stay rolling long as possible. To get the models we want, we have bought some rougher rigs than we are used to. Our ACV hasn’t changed, but what we could buy in previous years has narrowed some. Special financing has come back to life and new car sales are improving, which will help the supply of trades as we continue through 2012.
We as owners and managers have many responsibilities in the day-to-day operations of our stores. Your inventory is one of the most critical components of your business model. It plays a huge role in profits and losses. Inventory is the key to how your business performs. The vehicles out front are a major part of your advertising and attract the customers who are shopping on your lot. BHPH inventory is critical in the success of your portfolio, not only in the collection performance, but also in your loss ratios when you get the vehicles back or you experience damage claims. Finding the correct balance between affordability, portfolio success, loss ratios, desire from customers and profitability has always been a challenge. The last four years has toughened us up and hopefully will help keep everyone sharp as changes continue into next year.