Dealership Inventory Management: Automation vs. Accountability

If dealership inventory management is your biggest problem, you don’t have many problems. Every retailer in America has to deal with this issue—whether it is selling cars, blue jeans, or pie.



Your inventory is the key to your success, and that’s a retail issue not unique to the automotive industry. Automobile dealers have this pretty easy, however. My recommendation is that you do not automate your inventory, despite a plethora of good products to help you do it.

What you can automate, probably should automate, and likely do not automate is your management—not your inventory. That is, you need to hold your inventory buyers—and your sales department—accountable to see that there is a proper rotation of product.

Let me explain with an example: Fred is the used car buyer for your dealership. He knows the “iron” better than anyone in the dealership, and that’s how he earned his position. Fred has a better gut feel for the value of a car than Kelly Blue Book, Black Book, or any software program can predict. He knows regional variations, he knows what sells, and he is the right guy to be making this determination for your business. My advice: Trust Fred!

That said, what if Fred makes a mistake? What if he thinks that a 2010 GT500 Cobra will roll off your lot, but it doesn’t? As a dealer, you already know exactly what to do with that little gem—sell it. And you have built in procedures for doing so. Take it to auction (maybe). Discount it (maybe). Put a sales incentive on it (maybe). Send an email to prospective buyers featuring it (maybe).

How do you know if there is a car sitting on your lot that hasn’t moved? That is where automation comes in. How does Fred feel the consequences of the car that didn’t move? That is where automation can help you. Your DMS undoubtedly gives you a print out with the age of every vehicle on the lot, and likely how it was obtained. Use it. It is a daily glance—not something you have to study.

Bring Fred into your office and talk about the cars that have been on your lot the longest. Ask why. Learn about the cars. Know your normal turnover rate, and know the length of time that the oldest 2% of the cars have been on your lot. Use your best judgment, and talk to Fred and the sales department about those cars—be it one car, two cars, or 10 cars.

I once worked for a dealer that had a pretty healthy 64-day turn on cars. Two cars eluded our efforts to move them, however. They brought the average length of time on the lot up significantly. One was over 120 days, and the other was over 180 days—far too long for our dealership’s turnover rate. Those cars had to go.

I learned a valuable lesson from our sales manager. Most of our salesmen were paid 5% of up-front profit, and 20% of back-end profit at the time. I watched in disbelief as the owner said to the sales manager in a firm, but clear voice: “Move those two cars, whatever it takes.” The sales manager’s response was, “I’ll have them gone by the end of the week, but you may not like how I do it.”

He did it. He did so by going to his morning sales meeting and saying, “I’ll give a $1,000 spiff to whomever sells that car.” He showed a picture of the car in question. He walked all the salespeople out to the car. He drove it to the front of the lot. When it sold, he then posted the other car in the same manner.

Your sales manager knows how to move the iron. You know what works for your dealership. What worked for this dealership may not be the way you’ll handle this situation. Just make sure you do handle it. The message here: Manage your inventory. As long as you know what cars belong on the list to incentivize, you have all the inventory management skills you need.

Do you know which cars have been on your lot the longest? Could you go point to them? Do you? I’m not asking if you know where to get the list from—your DMS software can do that—but I’m asking if you have a procedure for actually going over that list regularly.

Now let’s get back to Fred. How does he get penalized for having bought the wrong car? He doesn’t—but he doesn’t get rewarded either. It is important to note that it wasn’t the wrong car—it was the right car (it eventually will sell, as all cars do) but it probably was priced incorrectly. Make sure that Fred knows what the problem was, and how it was remedied.

If your Fred is like every other dealership used car buyer I’ve ever met, he won’t make the same mistake twice. Just make sure he knows what went wrong.

David Eyerly is a seasoned automotive consultant operating out of Utah. He appreciates feedback to his articles, and can be of great benefit to new and growing automobile dealers. He is presently seeking clients only in the north central U.S. (Missouri and Iowa). He’s a phone call away when you just have a quick question, however; reach him at (903) 952-8865, by email at DavidEyerly@Juno.com, or through this magazine.

David Eyerly

1 Comment

  1. Avatar
    Les Hall December 22, 2015

    I find it interesting that at a time when a dealer has access to the data to know what the best selling used vehicles are in any given market – that anything other than data would be the basis for stocking every used vehicle. The “gut instincts” described for Fred may work in a small market with virtually no other used competition. But, in a competitive used market, if you only know about what sells at your dealership, you do not have the information to make sure that you stock the best sellers in the market. And stocking only what you take in on trade means that you constantly stock vehicles that are not in high demand.

    The only way for a dealership to get to the point that it is heading towards a 45 day or lower inventory of its used lot, is to make sure it stocks what the market is buying the most of. Inventory management is not about emotion – it is about data. And while everyone may remember the $4K gross vehicle, no one remembers all of the ones that made less and sat on the lot forever, or that it took 120 days to make that $4K. Having emotion and “gut instinct” involved in inventory management is why CARMAX made over $101 million in gross profit selling used cars it knew it did not want to stock to dealers that then stocked them to sell. These were all cars they purchased knowing that they would not put them into their inventory. Funny how dealers paid CarMax more for a used vehicle it wouldn’t stock, because the dealers felt that they could “sell” it.

    Having vehicles in stock that are in high demand is far easier than having to sell vehicles that have a very low demand. Remember, the vast majority of buyers are NEVER coming to your lot to see the things you want to sell them – they go to the lot that has what they are looking for – and those are the vehicles with the highest demand.

    What helps, is to not look at “vehicles” – but look at the parking spots on your lot as bins in a parts department. You manage how many turns you get per parking spot – and what is in the spot is only important from the perspective that it is in high demand and turns every 30 days. No emotion – just selling what is in demand and filling the spot when empty with another high demand, fast turn vehicle.

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