What percent of your inventory is under 30 days of age?

Below is an email from a Velocity dealer and my reply:

Mr. Pollak,

I have been a vAuto dealer for over a year and I love the product. Our grosses have improved and the vAuto market tool has helped me properly value trade-ins. My frustration has been our inability to prevent aged inventory. Since the used market has been strong and prices fairly stable it has not hurt the bottom line up to this point. However, I think you are right that prices will soften in 2013 which makes it even more critical that I reduce aged inventory.

Could you recommend a plan specific to my store? I know you are a busy man but I would appreciate any input you have to offer.     T

T:

Thank you for your note. To be clear, inventory age is a matter of choice as a result of discipline or lack thereof. Make no mistake that today, the used car business is a business of discipline and discipline No. 1 must be intolerance to age.

There has never been a time where you have to pay more to acquire a good vehicle at wholesale, nor has there ever been a time where you have experienced greater pressure to price competitively in order to see your fair share of shoppers. This means that you are operating at a highly compressed margin environment. The result is that there is barely enough spread between the cost of your vehicles and the price that you are able to ask on day one. Since used vehicles are depreciating assets, your vehicles quickly lose their ability to make a positive incremental contribution to the bottom line. Every dollar of depreciation is a much greater hit to your bottom line when you have a $1,800 spread versus a $3,000-$4,000 spread that you’ve had on your vehicles in year’s past.

With smaller margins, not only do you have to sell more vehicles in order to make more money, but you have to sell more vehicles more quickly, when they have the greatest amount of markup. If you’re going to sell more vehicles more quickly, you must stock more vehicles that are fresh. This leads me to the absolute rule that I say to every dealer. It is that at all times you must have a minimum of 50% of your inventory under 30 days of age. There is a direct correlation between the percentage of your inventory under 30 days of age, and the profitability of your department. Today, top performing dealers always have 50-75% of their inventory under 30 days of age. If you don’t have a minimum of 50% under 30 days at all times, there will not be enough markup to have a satisfactory bottom line. This means that you must ensure that vehicles retail within 45 days.

If you cannot retail a vehicle within 45 days, it should be considered nothing less than a management failure. This is because either you didn’t know where it needed to be priced in order to sell, or you weren’t willing to price it there. Either situation is a failure of management. T., thank you for realizing the importance of inventory age. Please stay in touch.

Dale