I continue to be amazed that in today’s hyper competitive new car market, Dealers are not paying closer attention to their new vehicle inventories.   Businesses from virtually every industry are increasingly leveraging data insights to make smarter stocking and pricing decisions to improve their inventory turnover ratio.  Nordstrom, for example, has distinguished itself by maintaining a best-in-class inventory turn, nearly 75% higher than many of their peers.  These great results are achieved by constantly evaluating consumer demand and sales data. Nordstrom uses these data insights to make optimal stocking and pricing decisions.

Although Dealers do not have a staff of data analysts like Nordstrom, there are some simple tactics that can be applied to increasing new vehicle inventory turn.

3 Keys to Improving New Vehicle Inventory Turnover Performance:  Stocking, Pricing, and Dealer Trades. 

Many New Car Dealers rely on recent sales history, simple OEM reports or gut feel to inform their monthly stocking decisions.  What Dealers really should be looking at is the sales velocity associated with each unique orderable combination and place less focus on the actual sales volume.  It’s true that if you stock 75% of your cars as silver, you’re going to sell a lot of silver.  What’s most important is how quickly the silver sells compared to other colors.

Second, Dealers typically think of price as a tool to drive promotion or to help close a deal.  Dealers should begin thinking of price more as a tool for managing inventory. Pricing should be based on the supply and demand of each unique combination vs. a one size fits all approach – such as $1500 discount on every Malibu in stock. 

Lastly, Dealer Trades are generally considered a daily “cost of doing business.” Dealers often do not realize this “cost of doing business” is actually costing them business.  In fact, 15-20% of aged inventory in Dealer’s stock is the result of trading out sold cars for aged or slow turning cars in return.  This lack of attention to detail creates more aged inventory and slows down inventory turn.

Much like the car business, Nordstrom is also facing downward pressure on margins as more and more consumers cross-shop online.  This reality only amplifies the necessity for increased focus on inventory turn by stocking and pricing more efficiently.  Most auto industry forecasts are calling for a downturn in new vehicle sales in the years ahead and continued margin compression.  Dealers who invest the extra effort managing their inventories will be in the best position to weather whatever storms lie ahead.