CDK's purchase of Auto/Mate may create a major disruption in the dealer management system (DMS) industry. Here is our take. DOWNLOAD
As I was discussing some plans about moving into 2015 with some colleagues, the thought occurred to me that there are varying opinions in our industry about “price” and “turn,” and I wanted to take a simpler step towards the conversation.
Every dealership has a finite number of spaces outside, and unless you are buying the lot next door from WaWa, it’s going to stay that way. The way I see it, the cars you purchase or trade to put in those spaces owe you rent. Whether you floor plan or own the inventory, the car itself is irrelevant. Each one of them is costing you money. The average “holding cost” or Fixed Cost per Vehicle per Day averages out to $28 a day. I’ve found this number in a couple places including an NADA post from 2012 as well as this one by NCM.
You may disagree with that exact number… well, that's okay. Let's just get back to the “owing you rent” part.
Example: You have 50 spaces outside and every one of them has a vehicle sitting in it. Each vehicle gets the space without paying you rent along with costing you insurance, floor plan, recon costs, (you already paid your service manager and shop bill, right?) but it’s also holding onto that coveted rent that you and your salespeople are depending on. So if you let it sit for over 30 days and then let it sit some more (45, 60 or even 90 days), you ultimately send the sheriff in to kick it out and likely lose that rent money and then some more by wholesaling it off. At the very least, you may break even, but did you really “break even?"
Having had the privilege of helping hundreds of dealers, I can personally tell you that a simple shift in your mindset can pay dividends immediately. Hopefully this short post helps you understand that our world doesn’t have to be an emotional rollercoaster when it comes to evicting vehicles that pay little, and in many cases, no rent at all. Each one of those vehicles you put on your lot is an inanimate object - they aren’t squatters by nature and they don’t want to be there any longer than you want them to be.
Now go collect some rent!