Inventory Acquisition 101
September 2010, Auto Dealer Today - WebXclusive
Focus on the Basics and Keep it Simple
The hottest topic right now in the BHPH world has to be inventory. Not only where but what to buy, how to find it and how to purchase it.
Like most other areas of the BHPH business, the most successful dealers are focusing on the basics in this area as well. They are firm believers in the K.I.S.S. philosophy (keep it simple, stupid). No need to over-think or over-complicate things.
The first basic they are focusing on in regards to inventory acquisition is repeat business. For the more successful dealers, between 30 and 40 percent of their monthly sales are from repeat customers. These will be either low-balance customers trading into a new vehicle or previously-paid-out customers who have returned to purchase again. So 30 to 40 percent of a dealer’s monthly inventory need is satisfied with vehicles they have a history with. That’s pretty valuable information to have when it comes to the vehicles we deal with.
Recycling of repossessions is the next basic to focus on. With these, you have the ability and time to completely check the vehicle out to determine its reconditioning need. You also have some historical information for the vehicle. The dealers I have the privilege of working with are recycling, on average, 60 percent of their repossessions each month to put back out on the lot for sale. The only negative seems to be that the recycled vehicles tend to have a higher reconditioning cost. They seem to need a little more love to get them lot-ready, but are overall more cost effective than purchasing at auction.
Speaking of auctions, they are collectively a basic that should not be overlooked. It is true that there are not as many vehicles going across the block these days, but it is still an effective source. The positive to vehicle volumes at auction being down is that auctions are becoming very competitive with one another for dealer business. Some auctions are even waiving buy fees or post-sale inspection fees. There is no better time to expand your horizons and check out as many auctions as travel and expense will allow.
When shopping for new or additional auction sources, do not limit the search to just the large national auctions. Independent auctions are becoming very aggressive in going after dealer business as well. I may be a little old-fashioned, but have always preferred independent auctions as they seem to provide better service and a better overall buying and selling experience.
I also recommend utilizing the Internet to aid the search for an auction honey hole. Most auctions (national and independent) are posting most, if not all, of their upcoming sale vehicles, as well as post-sale information. Most are utilizing SmartAuction, OPENLANE and/or OVE for the posting. These are also great resources for you, the dealer, to not only purchase vehicles from the comfort of your office, but also to research what auctions have available to know where your next auction visit needs to be. You might just stumble on an auction you weren’t even aware existed.
A final basic in the K.I.S.S. method of inventory acquisition would be dealer trades. New car sales are down so this is not the source it once was, but it still should not be overlooked. It won’t fill the overall need, but could fill a partial need. I think the key here is personal contact with the dealer. I’m seeing too many buyers just calling the dealer asking what they have instead of taking the time to actually visit the dealers.
Not necessarily a basic but a stone that should not go unturned would be the private seller. eBay, craigslist, newspapers and auto magazines are all sources to find vehicles. I used to turn my nose up at this stone, feeling it wasn’t worth the time and effort, but with today’s economic challenges, there are sellers out there who simply need the money to get by and are far more reasonable in their expectations. Will it fill the lot? No, but it could fill part of it, and that is what counts.
As for K.I.S.S. and acquiring inventory, I think it comes down to two very simple questions. How much do you have in the bank account? And how much of that are you willing to spend? There still is enough inventory available as long as you are willing to pay for it. Values are a little out of control right now but seem to have leveled off a little in the last month.
Finding the right inventory for the right price is still possible. The key will be to not over-think and thus over-complicate it. If you focus on the basics and keep it simple, you will be working smarter and not harder.
Vol. 7, Issue 7