Used Vehicle Pop Quiz: Why Is One Dealer Doing So Much Worse?

by dpollak on 01/06/2017 · 8 comments

Take a moment to review the following used vehicle inventory-level metrics from two similarly sized and geographically located dealer groups. Then, I’d welcome your answer to the quiz question below.

Inventory Market Days Supply

Dealer group 1: 85
Dealer group 2: 73

Cost To Market

Dealer group 1: 90 percent
Dealer group 2: 84 percent

Price To Market

Dealer group 1: 94 percent
Dealer group 2: 95 percent

Inventory Age

Dealer group 1: 40 percent under 30 days; 33 percent over 60 days
Dealer group 2: 65 percent under 30 days; 7 percent over 60 days

Annualized Inventory Turn

Dealer group 1: 7x
Dealer group 2: 14x

It should be clear from these metrics that Dealer Group 2 is doing a better job selling more cars and making more money on a per-car basis.

The question: Given the information here, what would you suspect as the root cause of Dealer Group’s 1 less-than-optimal performance?

Please share your answer in the comments below. I look forward to a lively discussion and sharing the right answer in an upcoming post. Thank you for your participation!

  • Contributor

    Morning Dale, my thoughts on where I’d look to asses areas for improvement for Dealer 1 would be as follows. I would look at factors around Dealer 1’s re-pricing of Stock to see if they are following the right approach. They maybe pricing right from Day 1 and then allowing the stock to age chunking prices after 60 or 90 days losing out of possible sales opportunities earlier by not pricing to the Market. I would also look at their stock in terms of desirability and want to check if they are stocking the right vehicles that are in demand in their area. They might have developed the overage problem 60 % of vehicle over 30 days because these cars are just not in demand for their Market and theirfore might need to be priced even more competitevly or they might need to look at sourcing options going forward to help them improve stocking higher desirable vehicles to help increase stock turn in the long run. With the overaging vehicles they also might not have a pricing strategy on their forecourt to maximise on profits earlier on in the life of the vehicle with them and then reprice to release that vehicle and might still be trying to hold onto those profits at days 60 / 90 plus rather than turning the vehicle and releasing that money back into the business. Their cost to Market is also high and this could be an affecting factor. So this would be a good arra to look further into to see if that could be improved which may then in turn allow them to have more movement on Retail Price further along the line if needed. We havent mentioned how each of these Retailers Market their stock and whether they are both fully digital retailers. I would also be looking at Dealer 1’s Marketing, use of images and video to promote his adverts along with descriptions and use of other media’s. Poor performance is this area also will be a major contributing factor. I look forward to your next post on this, have a grest weekend all

  • Joe Seppa

    It’s crystal clear that Dealer group 2 has the best approach. I think I speak for many when saying that I owe my success in today’s car business to vAuto and your velocity model. Thank you Dale!

  • Ray Kemmer


  • Steve Gerhartz

    Market Days Supply – Group 2 is stocking the more desirable, faster moving vehicles. They are paying more attention to market demand.

    Cost to Market – Group 2 is doing a better job of acquisition and controlling reconditioning costs. Also, as cars age they depreciate which causes the cost to increase relative to the market.

    Price to Market – Though Group 1 is lower Group 2 is probably doing a better job managing their “virtual inventory” with great photos and content rich descriptions and most likely “refreshing” both on a regular basis.

    Inventory Age – Most likely Group 1 has no clearly defined and enforced aging policy and is guilty of “wishful thinking”.

    Annualized Inventory Turn – A higher number is the result of doing all of the above correctly.

    Happy New Year!

  • Doug Lewis

    Group two has done a better job to acquire and control his recondition cost lower. Allowing him to market his vehicle at the price and pace each car requires by market demand. Dale has taught us there is a price ever car will retail at based on price to supply. As we trade and buy these vehicles we have the inside with V-Auto to know the days market demand and our local supply. Everyone of us back in our days acquired a vehicle and found out over the course of a few months we shouldn’t have paid what we did. We use to say we bought the wrong car! No we paid to much for a vehicle with a huge day supply that we could not compete in the market and sell. We know we will lose a deal once in a while. Most of our competitor’s are still using a black book. They allow a aged book printed based on auction report over a large area. Not your selling market. Those are the deals you CAN afford to lose. Our competition will decide one day to get aggressive as he loads up his used car lot. To only find out months later he has problems. Then he goes back into his shell. We have chose not to live our life riding a roller coaster like that. I could never tell you what a car is worth in any market with having all the data that V-Auto supplies us to determine what its worth on the lot. It’s clear to see CarMax has figured how to acquire. When they make an offer to buy they know what market that it is going to. For most of us to compete we have to go on line in a much larger distance. This allows us to buy cars that are being sold in a market with huge supply at a lower price and low supply in our area us. Warning its new to most of us and different. Try getting your managers to change their old way of thinking. It’s not going to be easy….

  • Jeff Michor

    1) Your profit is made when you acquire the vehicle. Group one for some reason acquires their vehicles on the high side.
    2) Because they buy them on the high side that puts pressure on the person pricing the vehicle to make some kind of profit. So they start with higher prices and tend to drop them slower. Even if there is very few people viewing their vehicle online.
    3) That usually slows the turn of your vehicle and inventory
    4) The fact that group 1 has their price to market lower than group 2 at 94% to me just means it took them longer to get their vehicles priced some what competitive.

    I believe in life as well as business there are two types of pain.
    1) The pain of discipline
    2) The pain of regret

    Having the discipline to acquire at the right price and recondition so your vehicle stands tall. Then turn your vehicle at the right time, sometimes we pass on an offer in the first days because for some reason we think we can make more off the next customer. Some times we are right, often we gamble and are wrong. This discipline is often very difficult and requires the right culture and buy in from the whole team.

  • Joe,
    A bit of inspiration from me, perhaps, but it was your persistence.

  • comentsection

    Everyone nailed it. I especially like Jeff’s answer. But the question was what is the ** ROOT CAUSE ** of owning high MDS cars while paying to much thus forcing your hand at pricing outside of reality. The reason is packs. The reason could be buying deals, and passing baggage to the trade, The reason is Missing a Key piece of recon. And no one is alone we are killed in some cars. But we are also human. So we give it a shot, it get’s away and what could have been a $1,000 additional loss on the car we sell we trade for a major loss 100 days from now. Now that we know the cause of age you can prevent it. And if you can’t stomach losing money on day one then what”s the plan? Subprime, Spiff, ?? But you better do something. Hold and Hope never works. As much as I’ve ever tried to be disciplined, I go off script. The fact that high CTM remains the only predictor of age proves this. Great info Dale.

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