Drilling Down Into Overlooked Used Vehicle Opportunities

 

A quick test: What percentage of your used vehicle inventory do you retail in the first 10 days or less?

OK. Time’s up. Do you know the correct answer for your inventory?

Relax. I wouldn’t necessarily expect that you’d be able to ace the test. In fact, only a few dealers actually monitor their inventories at this level of granularity.

I’d also submit that one could make a case that dealers don’t really need to know how many vehicles you retail within the initial 10-day timeframe. If they’re paying attention to other, broad inventory metrics—like Market Days Supply, Cost to Market, Price To Market and Average Age (in days) of Inventory—they’ll do just fine in terms of inventory turns and profitability.

More and more, however, “just fine” really isn’t enough to maximize used vehicle department performance, not to mention the “total gross” potential of the dealership.

This realization has spurred bright-minded used vehicle managers to drill deeper into their inventory data.

Here’s an example shared during this month’s Access: Velocity event: Trent Waybright, director of used vehicle operations for Kelley Automotive Group, Fort Wayne, Ind., took a close look at his 10-day-or-less tally and found less than 20 percent of the group’s used vehicles sold in this timeframe. No surprise, the cars in this segment also produced the highest average gross profit when they sold, and they had the lowest average cost of all inventory units.

Next, Waybright calculated what his departmental gross would look like if he sold 5 percent more units in 10 days or less, a task that would require a 1 percent lowering of the transactional Price to Market average for vehicles in this age segment to 99 percent, and pulling forward sales that typically occur after 30 days. His exercise revealed an opportunity to increase departmental gross by $36,000/month.

Waybright is currently looking to address the challenges beyond price changes necessary to realize the improved results, with tighter reconditioning times first on the list.

I believe other dealers would benefit by examining how/why their inventory performs when it’s fresh and isn’t. Between these two poles, I suspect you’ll find opportunities that can make a “just fine” performance in used vehicles even better.