Remember this? The REAL cost of aged units on the lot

Jeremy Wiggell
In times when everyone is focused on keeping up with technological developments in order to maintain pace with the market, here is a reminder of the simple basic rule of used vehicle retailing. Ageing inventory is NEVER a good thing! We all know that. Here's the reason why - laid out in simple terms as as a stark reminder which drives home the importance of why we spend all our time trying to avoid this problem.
Jeremy Wiggell
Full Article HERE Dwindling margins, difficult to source inventory, the need to increase turn rate, problems getting found online..... All the fun challenges of today's used vehicle market that take up all our efforts. In the midst of all of this here is a quick reminder of why all of the above is so important. The REAL cost of overage cars. If ever you were tempted to think that there is a buyer for that old inventory unit somewhere and sooner or later you will at least make a small profit or 'get you money back', think again. Let's look at that car you have had for 120 days that is being ignored by all the sales team because they know there is no money in it for them. Despite your generous spiff, they can still make more by selling a new arrival with a proper margin across it and beside they are fed up of seeing it and have no confidence in it being bought. So here are the facts: Let's not argue about the numbers here. They will vary from dealer to dealer so put your own figures in where applicable, the result has the same effect. The current cost of the car is $12000 on your books. You pay flooring interest on it at say 6% ( $236 over the 120 days) . You are also paying advertising costs on all your units, The cost applicable to this one could be say 3% of its inventory value ( $118). The car is of course depreciating as it sits on the lot, maybe 15% over a year so that is $519 over 120 days. You will have had the car re-cleaned and washed several times while it is on display so another 3% for that makes an additional $118. Now that little lot adds up to $1065 in costs just for the car to sit there. But here's the real killer.Lets say you turn you inventory every 45 days and your average profit is $2000. This means that in the 120 days you old unit has remained unsold, it is taking space and funds. Under normal circumstances, in 120 days you would sell a car and replace it with another 2.67 times (days/turn rate, 120/45). At your average gross you would make $2000 x 2.67 = $5333. This is the amount of lost revenue that the overage unit has cost you. So, here's the summary: 120 day overage car Cost$12,000 Interest$236 Advertising$118 Depreciation$519 Lot cleans$118 Lost profit$5333 Total cost of stocking this car = $6,398 Going back to the top of the page, if you thought you might retail out of it and 'get you money back' you need to sell it for $ 18,398! And this is 4 months after you bought it for $12K. Good luck with that! The math speaks for itself. Turning inventory is the single most important factor to focus on in the used car business. Reminding ourselves of the basics in this way certainly helps to focus the mind on what we should be paying attention to every single day.

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