A Predictable Late Year Problem For Many Dealers

I received the below note from a Velocity dealer, outlining an aging problem we normally see as the year comes to a close.

Dale,

While my stores have had your software for over 4 years, to be honest we have not followed the strict tenants of Velocity enough and find ourselves with a lot of over-aged inventory now that we need to work our way out of. At the same time, we’re starting to drink the cool-aid again in terms of getting back on the Velocity program by instituting a strict turn policy that we will adhere to. We basically have segmented the inventory into two buckets:

1. those problem/over-aged vehicles we need to work our way out of (wholesale/wholetailing) over the next few months

2. those on the Strict Turn Program (STP) which started in earnest last month (60 days for off-brand, 90 days for same brand as our franchise)

If we keep these inventories separate and execute upon them in a different manner then would it be appropriate to begin to aggressively buy inventory that will become part of the STP? For the inventory under this program this would be acting as if we were a new dealer starting from scratch on the Velocity program.

Could you please share your thoughts?

Thank you very much.

G,

I’ve taken a look at your inventory profile in vAuto, and I have several insights to share with you. First, you are correct in recognizing a considerable problem with the age of your inventory. I commend you for taking immediate action to resolve the issue. I also think that you are correct in drawing a line in saying that any vehicle over that line will be aggressively priced or packaged to move. The vehicles on the front side of that line have to be treated with a zero tolerance policy that no more will ever cross the age threshold. Should any vehicle approach the threshold, it should be immediately disposed of, either wholesale or retail, and the loss should be applied to the current month’s profit. This will ensure that everyone responsible for the loss shares the pain with respect to their commissions.

I do not, however, agree that you should go out and buy more inventory and treat it as “fresh.” You presently have way too many vehicles, and there is absolutely no justification whatsoever in buying more. You must sell your existing vehicles otherwise they are only going to become older and more depreciated. Unfortunately, you’re going to have to endure some pain before you can get healthy.

Remember that if you cannot retail any vehicle within 45 days, it is nothing less than a failure of management. This is either because you didn’t know where the car needed to be priced to find a retail buyer, or you weren’t willing to do it. Either one is a failure of management’s responsibility. The used car business is a business of discipline, and the number one discipline for making money is intolerance to aged inventory. Please keep me informed of your progress.

Dale