A Scientific Approach to Your Used Car Inventory

Dec 14, 2012 | | 13139 |

A Scientific Approach to Your Used Car Inventory

By Bruce Thompson

In our line of work, my business partner Randy Barone and I spend a lot of time talking with dealers like you all over the country. Here’s what we’ve been hearing …

  • Used car sales make up about one-third of a dealer’s total sales
  • You spend an awful lot of time deciding whether or not to stock certain vehicles, and then even more time making pricing decisions
  • You’re frustrated by the apparent lack of tools and solutions that support the used car inventory management process
  • Competition for used cars is tight, and margins are eroding

So Randy and I set out to create a solution that not only supports one of your largest profit centers, it makes decisions about used car stocking and pricing almost automatic. And now, with Lot Management, we’re proud to unveil this exciting, next-generation solution.

Scientific Lot Management combines the best of both worlds

Lot Management takes a scientific approach to used car inventory. This solution combines the best of two distinct types of inventory tools, and then takes it all to the next level.

Over the years, used car managers have had two basic types of tools available to help make inventory decisions:

  1. Historical data tools that make suggestions based on past performance
  2. Market pricing tools with data for high-volume movers and information from search engines about what types of vehicles people are searching for What’s great about historical data is that it tells you exactly what vehicles have done well in your store, and which ones don’t do as well. But where historical data falls short is in helping dealers grow. That is, if you’re satisfied with maintaining profit margins, turn times, and so on, historical data is perfect; you’ll just keep repeating those same stock and price decisions. But if you’re ready to take your dealership to the next level, you’ll need more than a window to the past.

That’s where market pricing tools have come into play. With access to dozens of industry-based market data reports, dealers gain more insight into the types of vehicles consumers want to purchase, and are empowered with that information when they go to auctions. Market data also helps dealers set prices for used vehicle inventory. Unfortunately, dealers across the country all receive the same sets of market data, creating undue competition at auction, which both drives up your purchase price and limits available inventories. And some solutions will unconditionally advise dealers to price used vehicle inventory in the bottom third of overall market pricing, helping reduce turn times … and profits.

Moreover, just because a red Audi sells well at one dealership does not mean that’s an ideal vehicle for your dealership. The market data solution ignores your dealership’s DNA, making recommendations based on industry-wide and nationwide statistics. As we’ve often told dealers, the wrong vehicle priced right is still the wrong vehicle.

With SmartPrice, your inventory automatically adjusts the pricing to the parameters you’ve determined so you can maximize your profits on newer inventory. And, Lot Management Pricing lets you slowly reduce the pricing on older inventory, helping you move these vehicles off your lot.

Lot Management merges historical and market data strategies

Lot Management is a next-generation solution that combines the best of historical and market data solutions to give your dealership the analytic recommendations you need to effectively and profitably stock your inventory. By combining historical data with market pricing solutions, as well as regional transaction data based on make, model, mileage, and trim level algorithms, Lot Management delivers optimal inventory stocking and pricing recommendations. And, as you buy and sell more used vehicles, this new solution adjusts with you, improving sales and profits on a continual basis. Every time you or someone from your sales team scans a VIN—using your handheld mobile device— you’ll receive a specific, actionable recommendation from Lot Management within seconds.

Let’s say, for example, that your salesperson scans a potential trade vehicle during a sales negotiation. Once that VIN enters Lot Management, the solution uses more than 90 unique algorithms to analyze:

  • How similar vehicles have historically performed in your dealership
  • How many of this vehicle you currently have in stock
  • Current demand and pricing levels for similar vehicles throughout the marketplace
  • Wholesale value guides from the major books
  • Local market turn times and current day supply in your geographic region
  • Market profit per day for this vehicle
  • How fast dealerships typically turn the vehicle
  • Vehicle history reports from a variety of reliable sources
  • Auction data to the trim level
  • Search engine data from online resources

In a matter of seconds, the solution will alert the used car inventory manager, who will review the recommendation and decide whether or not to purchase the vehicle, and at what cost. Dealers who are using this solution are seeing tremendous lift in their used car inventories—greater profits, faster turn times, more satisfied customers. In fact, in a majority of cases to date, Lot Management’s recommended vehicles sell in about 22 days and contribute approximately $2500 to the dealership’s front end gross.

Imagine a dealership that sells 100 used vehicles a month. If 80 of those vehicles contribute $2500 to front end gross, that’s $2.4 million of incremental profit every year!

Today’s competitive market requires a new approach

The last five years have reshaped the automotive retail space. Six years ago, if you had told Randy or me that we’d have OEMs closing down dealerships, which would then reopen their doors as used car superstores, I’d have written you off. But that reality has come to pass. More used car dealerships mean more competition for what’s available; and that has been compounded by the number of people who now keep their cars longer than ever.

This new competitive space truly requires a different, more scientific and analytical approach to used car inventory management. With Lot Management, today’s dealers are in a far better position to make the right stocking and pricing decisions, purchasing vehicles that are expected to sell well, quickly, and at a reasonable profit.

 

Learn the Latest in Used Vehicle Inventory Management

Authors: 
Bruce Thompson

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