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The very first lesson I was taught as a young, naïve used car manager was turn is king. I was told that I needed to view each used vehicle as an individual stack of cash or investment and the quicker I could turn that stack of cash, the more profitable my department would be. The logic made complete sense at the time because I, like everyone else, understood that a car is a depreciating asset and you don’t want to sit on your investment too long and let it depreciate too much. Also, the shop makes more money, we make more pack, we make more doc fees, and we make more back-end money. So all I needed to do was to stay on top of my pricing and so long as my cars were reconditioned and advertised properly, I would succeed. Sounds easy right?
Any car guy knows that the best time to sell a used car and maximize profit is to sell it in the first 30 days. We also know that you are doing a good if you can sell 60% of your used inventory in the first 30 days. What’s the best strategy with the remaining 40% of your inventory then? Should you go to a 45 day turn and sell the remaining 40% in the next 15 days? Is a 60 day turn better? 90 days? Should I even care about how quick they turn knowing that I will eventually sell them if I’m ok with taking a huge loss?
I work at a bottom line pricing dealership. We have been running on a fairly strict 90 day turn policy the last couple of years and we are trying to transition to a 60 day turn policy. As we have started to make the transition, I have noticed that I do a lot more discounts than I used to and we are taking skinnier deals as a result. A shorter turn policy would make complete sense in a normal depreciating market, but does it make senses in today’s market? Everyone that knows anything about used cars understands how volatile the market has been and how crazy thing have gotten at the auctions over the last couple of years.
The concept of turning your inventory quickly makes complete sense to me if I can go replace that same care for cheaper than my current cost at the auction. We all know that that isn’t the case most of the times. So, back to my original question. Do you really want to follow a 60 or 90 day turn policy and “drop your pants” so fast knowing you are in a very unpredictable market? Or, is it better to keep your pants on and try to put more emphasis on gross and less on turn? It’s a tough call for sure! I would love to get some insight and hear what you guys think. What is working for you?