I recently had the opportunity to interview most of the top ranking dealers in the Leedom and Associates Top 25 Special Finance rankings, many of which were already clients. When asked the average wholesale cost of the vehicles they sold, the replies ranged from $8,000 to $9,500. These are dealers that are selling hundreds of Special Finance deals per month. That is some pretty credible information.
The bottom line is that there are countless dealerships that have an abundance of used car inventory, and think they are set for Special Finance. Even if they have 200 used vehicles, however, it is all for naught if the Special Finance department is left with nothing but an abundance of vehicles with an inventory value of $15,000+, or that is at or above book value. Deputy Barney Fife had more bullets in his gun than that.
People often wrangle when I state that I believe that inventory is more important than personnel. Make no mistake, I always state that to be successful you have to have both, but I have personally witnessed in many dealerships a “green pea” that is coached well by the desk land a $4,000+ gross profit—not because of his skill, but because of the inventory. I have witnessed just the opposite as well. I have seen some of the most professional sales personnel stymied with a sub-prime customer because the dealership is upside down in its inventory and essentially has no way to structure a profitable deal.
No, I wouldn’t want a sales staff full of “green peas.” No more than I would want a field full of $15,000 vehicles that are in inventory at, or above book. It is no coincidence that those who usually argue against my point are the dealers that always have good inventory, and always work to keep it that way.
Speaking of which, it also amazes me that some dealerships have no problem maintaining an optimum Special Finance inventory and keeping it fresh, while others, in the same market, struggle to do even half as well. First, let me say I have never seen a market anywhere in the country where you couldn’t buy vehicles for Special Finance. All you have to do is to know your lender’s programs, be able to use your guide books and use some discipline.
What causes that comment is the epitome of the “grass is greener” syndrome. On the same day last month, I talked with three dealers in three different markets—one in Kansas, one in Texas and one in Wisconsin. All three were convinced that they had to leave their market to buy vehicles. You guessed it. Texas was going to Kansas who in turn was going to Wisconsin, who naturally was going to Texas. Of course I knew other dealers in the same markets that were staying “home” and making out extremely well with their local auctions. “How can that happen?” you ask.
The truth is that it happens all the time. There are some buyers that can spend all day at an auction and never see the first Special Finance vehicle, and at the same auction a different buyer may find two truckloads. It is just training the mind and the eyes in what to look for (and where), and communicating with the Special Finance Manager to have an understanding of what vehicles and price ranges will work well with the lenders.
So where does all this commentary lead us? As I said at the onset, this is dedicated to the Special Finance managers struggling with inventory.
If you are a typical department of two people, you are likely selling roughly 25 vehicles or so per month—or should be. To have sufficient stock, you should have in inventory at least 80 percent of your forecasted sales level (in this case 20 units) in the $7,000 to $11,000 range (at wholesale cost) at a minimum of $500 behind book value (usually much more). This will allow you to sell 80 percent of your vehicles for under $400 per month, and do so while achieving benchmark gross profits. Without it, you will struggle with mediocre gross profits and deals that you just can’t find a way to put together.
This inventory exists in virtually every market in the country. Find it, and you will find the key to unlock the hidden treasures in your Special Finance department, and your results will soar. It is that simple.
Until next time, make it a Special month!