installing a stocking guide and simply measuring the cost of sales of the units we are delivering versus the remaining inventory by sales segment and individual model years within each segment. I have developed an Excel spreadsheet (“stocking guide”) tool that you can use to accomplish this and I will be happy to send it to you upon request with no charge or obligation. Simply send me an email asking for the used vehicle stocking guide and I will send it to you. It is easy to use and it really does work. I like to use the following 11 sales categories and the eight most recent model years within each category. The categories are: small car, sporty car, mid-size car, full-size car, small truck, small sport utility, large truck, large sport utility, minivan and van. When you clearly know what the cost of sales of the vehicles are that are “burning gas” is and couple that with how quickly they turned, and then compare that to your “ground stock”, you will have an exact idea of what you need to stock. As an example, if your number one gross revenue producing sales segment is mid-size cars and your best performing model year and quickest turner is 2008 within that segment and the average cost of sales is $8,200, then it stands to reason that your inventory of vehicles in that segment and model year needs to be as close to $8,200 (lot ready) per unit as possible. The sales pace of that segment determines your “stocking guide”. The closer your inventory is to the cost of sales of the vehicles that you are selling, the more active that inventory becomes. Conversely, the further away from the $8,200 target your inventory is, the less active it becomes. If, for example, you happen to be offered a trade that is a 2008 mid-size car but is worth around $14,000, get a buy figure on the unit that is good for at least ten days, trade for the vehicle, try it out on the lot for those ten days and if it isn’t gone at retail at the end of those ten days, cash it to the person who gave you the buy figure. This will allow you the opportunity to try other vehicles without the risk of wholesale pain. Ultimately, you will find the ideal inventory in both the number of units you need, as well as the cost, for each sales category and model year. I strongly suggest aiming for a target of a 37 days’ supply of units and a 37 days’ supply of dollars in each sales category and model year. (The unit days and dollar days calculations were covered in a prior article and I will be happy to send it to you upon request.) It will soon become evident that there are some sales categories and model years that just do not make sense to participate in with an inventory investment. You will also find that by maintaining 37 days’ worth of units and dollars, there will be categories and model years that sales grow rapidly in. And finally, you will also be able to find the point of diminishing returns in each sales category where more unit in inventory, does not necessarily mean better sales in that category and model year. Part of the reason Wal-Mart has become the retailing giant 26
that it is, is due to strict adherence to the basic principles of inventory management: monitor demand, measure movement, make decisions and adjust inventory. You will rarely find any of their shelves empty or overstocked. If it is a good producing, quick turner, they gradually increase their stock until they find that point of diminishing return (where more doesn’t equal better). If they have tried it and it doesn’t work, they forget it and move on with something else. If you will take the time to implement this type of system, (or any of the available vehicle inventory management systems, mine included), you will increase your total Used Vehicle Department’s gross profit more than you might imagine. The bottom line is when customers leave our individual used vehicle car lots without purchasing, it is almost always because they did not see what they truly were looking for. (Sometimes they will not even get out of their vehicle and just do a “drive by”.) Remember, you cannot be all things to all people, and it is impossible to stock everything. When your used car lot has more on the ground of what your customers are looking for, what do you think will happen? Today’s technology gives us all the opportunity to make more intelligent decisions, more accurately and faster than ever before. Literally, with a few clicks of your mouse in the right program, you can get all of the information you need to make a better inventory decision. While it is impossible to predict economic swings, natural disasters, terrorist activities or wild fuel price fluctuations, you can phase in a “more active” inventory. It has been said by many different professionals that the first step to recovery is to admit you have a problem. This step is often the most difficult one to take as it involves an admission to oneself that somehow, someway, we have not achieved what we wanted. As car people, we always want to do better. Being of the optimistic breed, we all believe we will do better, even when repeated results keep staring us directly in the face, month after month. Is your inventory the problem… or the solution? Do your managers really use an inventory management system? If not, why not? Are you willing to change both your and their behaviors to attain different and better results? Once you decide to really “Go With The Flow” and implement those changes, you will be sailing along and charting a course to increased profitability. If you need anything from me, or would just like to talk about what some other dealers are doing to grow their business, please feel free to contact me anytime. For more information about this topic contact Scott Dreisbach, Vice President of Valuinsight, 561-368-7810 x 108, sdrize@ valusight.com, www.valuesight.com.