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Make Your Pre-Owned Inventory Turn and Burn
In today’s market the pre-owned inventory within your dealership must be bought, sold, advertised and managed better than ever before. Within this article I am going to give you some simple and progressive solutions and ideas to help you get 12 plus turns per year out of your pre-owned inventory and grow you’re front end gross averages to over 3K. So are you ready to make some money?
First, you have to get your mind right!! Understand that your inventory is an investment nothing more. Whether you floor plan or not you must understand that there is a “daily holding cost” for every vehicle that you have in stock and that cost starts the second that you receive it into your inventory. I have had dealers who brag about their gross averages being over 3K but thier average inventory age is over 90 days old. That 3K gross was more like a wash when you account for the time the vehicle was held in inventory. Once you understand and you look at your inventory with no emotion then you are ready to get your 12 plus turns per year and higher gross averages.
Here are some ideas when buying inventory from auctions.
Here are some rules for trading for vehicles.
When it comes down to putting a number on a vehicle there are a lot of tools that can help you with that or you can just look up auction history data through Manheim or SmartAuction. By looking at the auction data you will know what amount you can sell the vehicle for TODAY if you needed to.
You must get your inventory recondition process done in an average of 48 hours or less. How do you do this?
The moment that the vehicle enters your inventory I would want you to ask and find answers for the following five questions.
Now that you have decided to keep your investment it’s time to price it. There are some vehicles that you will need to be very aggressive with and price less than 95% of the market and others that you can knock out of the park at over 120% of the market. I break my inventory down by stars, here is how it works:
1-Star is a vehicle that is AS-IS. These vehicles work very well for BHPH, Special Finance or cash buyers. These vehicles normally will ACV below $3000. The Achievable Margin on these vehicles is all over the board. You should make a great return on these because of the price points.
2-Star is a vehicle that has some miles on it but you are not scared to sell it to your mother. These also work well for BHPH, Special Finance and Cash Buyers. These vehicles are in most cases older than 6 years and have less than 120K on the ODO. The ACV on these vehicles is normally under 10K.
3-Star is a vehicle that there is a large market day supply. These vehicles are still under factory warranty. In most cases they are your typical Impala, Camry, Malibu, Fusion you get the point. A 3-Star vehicle is your greatest chance of loss so be careful when appraising these. These vehicles sometimes work okay for some Special Finance clients but with ALLY, Ford Credit and others getting more aggressive with these clients they will want them in a new vehicle with a short term lease.
4-Star is a vehicle that it is easier to replace the client than the vehicle. These vehicles are normally super low mile older than 5 years. For example 2005 Buick LeSabre Limited with less than 20K miles or a 2006 Volkswagen Jetta TDI with 30K miles. You can knock these out of the park every time. When stocking a lot I would always go after 4-Star vehicles, your clients love these.
If you stock your lot with a majority of 1,2 and 4 star vehicles your front end gross averages should be around 3K if your inventory is priced correctly and deals are desked properly. It doesn’t matter what market you’re in a 3K front end average is obtainable. I know of a dealer who I worked with that had an average over 3K in 2008 and was still able to turn their inventory every 30 days. If they could do it back then you can do it today.
Now that we have covered to Stars process let’s talk a little about how long you should hold your investments. Here are some simple rules based upon ACV and hold time that will help you turn more and virtually eliminate wholesale loss. Never ever hold any vehicle longer than 60 days unless it has an ACV below 8K. Here is a rule that will help you out based on ACV.
Within this article I have touched just the tip of the ice berg. There are some many variables that take an okay performing pre-owned department to an extraordinary pre-owned department. I have helped numerous dealers go from losing money in their pre-owned departments to making over 30% + net to gross. So if you are under water and need some help revamping your pre-owned department or you just have some questions on how to do something please feel free to email me at email@example.com or call me directly at 419-706-5770. I would love nothing more than to help you turn your pre-owned department into a 30% + Net to Gross Monster!!