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Jared Hamilton
From: Jared Hamilton
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Jim Bell

Jim Bell National Sales Executive

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Do You Have the 'Velocity'?

Pricing vehicles effectively in the market place can be a challenge at times.  However, when you do, you can have some serious velocity for the business; not only sales, but fixed operations also.  There are a few different pricing softwares out in the marketplace that you can use.  The bottom line is you have to use them effectively.  I remember several years ago while I was a sales manager, there weren't pricing tools available that would scan all the different websites.  I would have to go to autotrader and cars.com to make sure that I wasn't pricing myself out of the market.  I would also do a KBB on the vehicle to go along with what I found and just shoot from the hip on the pricing with what I found online.  Now, those pricing tools have everything that you need with a few clicks of the mouse. 

Here is a scenario for you.  Would you rather have a gross of $2200 per vehicle sold or would you rather have things priced effectively within the market and make $1400 per vehicle, but sell more cars at the lower gross?  Here is a dose of reality that sales managers have a hard time grasping.  If you carry a 75 unit inventory and make $2200 per vehicle, but your average inventory age is 50, you would make about $1,642,500 in a year.  This includes Finance income of $500 per vehicle and fixed operations making $300 profit on the sales department. 

 

  Used Vehicles Gross Based on Current Inventory( Average Days/Turn)    
  Annual Gross Revenue
Units in Stock 75  
Average Age in Inventory 50  
Average Turn 7.30  
Annual Unit Sales (Units in Stock x Turn) 548  
Current Front GPU $2,200  
Total Front Gross(GPU x Units Sold) $1,204,500
Current F&I GPU $500  
Total F&I Gross (GPU x Units Sold) $273,750
Fixed Ops (70/30) GPU $300  
Total Fixed Ops Gross (GPU x Units Sold) $164,250
 
Total Gross Generated by Used Vehicle Operations $1,642,500

 

Now, if you carry the same inventory and bring your front gross down to $1400 and your average days in inventory down to 30 days, that will bring the bottom line to $2,007,000, a net gain of $365,000 with the same amount of vehicles in inventory. 

 

  Used Vehicles Gross Based on Current Inventory( Average Days/Turn)    
  Annual Gross Revenue
Units in Stock 75  
Average Age in Inventory 30  
Average Turn 12.17  
Annual Unit Sales (Units in Stock x Turn) 913  
Current Front GPU $1,400  
Total Front Gross(GPU x Units Sold) $1,277,500
Current F&I GPU $500  
Total F&I Gross (GPU x Units Sold) $456,250
Fixed Ops (70/30) GPU $300  
Total Fixed Ops Gross (GPU x Units Sold) $273,750
 
Total Gross Generated by Used Vehicle Operations $2,007,500

 

To me, going with the second scenario would make more sense.  However, there are a lot of Sales Managers that don't see it that way.  They go for the gusto and want to be the hero in making the most money for the department on bigger deals when they would be doing justice for the company to go for a little lower gross and turn the inventory faster.  The second scenario, you would be selling 365 more vehicles (30 per month) at a lower gross per vehicle, but making more money for the company in the long run.  The more effectively you price your vehicles, the more clicks you will have on those third party websites, therefore, more floor traffic, and more sales.  Cheers to good selling!

Jared Hamilton
what makes this concept REALLY hard to get through to an old school sales manager is they simply dont believe they are costing themselves any deals by holding out for higher gross. Every sales manager thinks they are not letting a single deal leave that should/could have bought... which may be accurate. HOwever, not pricing on the money will cost you visitors to your showroom. Right now people dont LEAVE because your price is to high, they NEVER VISIT you to begin with if your price is to high. Simply put if you are not on the money in your pricing, you phone is ringing less than it should, your lead volume is less than it should be, and yes even your walkins are less than they should be. Nice post Jim!
Ed Brooks
Jim and Jared - You guys both nailed it! Not long ago I was demonstrating vAuto to a dealer on a webinar. We'd already compared their inventory and turn rate to a successful dealer using our tool. The dealer I was speaking with was turning inventory 5 to 6 times a year. The dealer I was referring to was hitting 18 turns. We dug into the dealer's inventory and found a truck that had been in stock for over 160 days. Market Days Supply was high and they were asking about 10% over market average for it. I stated that this was a pretty "Low Odds" proposition; asking all the money for a truck that few were buying and was over-stocked in the market. The Used Car Manager piped up with a fair amount of pride in his voice and said, "We just rolled that one yesterday - And for ALL the money." The owner stopped him asked if he realized that while he had sold one truck for "all the money" the folks at the other dealership we were looking at had sold 8 vehicles? With 8 times the back end opportunities and that the shop had run 8 times as many vehicles through for recon. Every dealer has a hand on the volume control for traffic today. It's your pricing. And on occasion when you trade a high Market Days Supply vehicle into your inventory, don't be too proud of that car. Price it move and clear it off your lot. Replace the vehicle on both your lot and your floorplan with a car that has "Better Odds".
Jim Bell
Getting rid of the 'old habits' was the hardest part of going with the velocity process. Our used car manager is a veteran and was very hesitant at first, but now that it's working, he is beating his chest.
Bryan Armstrong
I would agree with this to a point. We employed this strategy and were down to a 22 day turn (which brings up A LOT of shop and photo issues FYI). However, if there are only 2-3 vehicles in a 250 mile radius, don't be lulled into thinking that you can't sit on that vehicle for "all the money". To many get caught up on looking at % of market without looking at supply. Wash your pricing tool against a scarcity report as well as maybe some Registration data from your market and find the cars that are in demand but short-supply and make your gross. The "Enterprise Specials" that you can have 10 more of next week, turn em quick and establish yourself as the best value Dealer in your market.
Ed Brooks
Bryan, I couldn't agree more. The short-supply, high-demand vehicles are exactly the cars you should be making all the money on. The scenario I was describing was the opposite; a low-demand, high-supply vehicle. I also agree that looking at percentage of market without looking at supply is a problem. And you are correct that looking at supply without factoring in demand is also an issue. That's why we believe that Market Days Supply is the single most important metric when it comes to deciding which vehicles to stock, how much to pay for them, and how to price them to both drive traffic and achieve gross. Rather than look at registration data from 60 to 90 days ago, we utilize advanced analytics to determine supply and demand in real-time. What we call the "Live Market View". More than enough of a commercial from me :-) Great insights Bryan.

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