Effectively managing your vehicle inventory is the ultimate goal of any used vehicle department. To maximize your profits, it’s vital that you and your sales staff practice regular procedures that keep those vehicles churning. While many dealerships tend to focus on the importance of “Internet pricing” when it comes to managing vehicle inventory, blindly following a general theory of pricing and stocking vehicles based purely on Internet advertising data can lead you down a path of reduced profits and slow-turning vehicles. So what are the issues you should consider?
Having and using critical information specific to each vehicle’s performance, such as gross profit and return on investment, can position you to meet market demands while achieving your goals. Undercutting your price just to be listed first on a Web page can have a negative impact on profits. There is no proof that undercutting prices alone drives more traffic to your store; don’t give away margin if you don’t have to.
Also be sure to consider the demographics, reputation, location, and history of your dealership. Those are all factors that can help you justify a higher price and avoid being part of the “Internet pricing herd.” A customer may pay a higher price at a dealership that is nearby, has a good reputation in the community, or that they’ve done business with before (again, don’t give away margin if you don’t have to).
Additionally, use systems that provide you transparency into the wholesale market to stay ahead of the game. Wholesale pricing moves rapidly and is much more subject to supply and demand, while retail pricing tends to move more slowly. Having the ability to monitor wholesale shifts in conjunction with real-time retail pricing can better position you to be successful in your market.
Here are two best practices that deliver high volume while protecting margin.
1. Use demand to drive price.
Know what units are in demand for your store or use a proven distinguishing factor (like certified pre-owned) that allows you to command a premium for these vehicles. Identifying vehicles that have a proven lower risk of aging based on your store’s history and turn faster at a higher gross gives you more flexibility. Having this information based on performance allows you to price vehicles higher and mark them down slower, putting you in control of your inventory.
2. Use price to drive demand.
Vehicles that you typically would not stock, which don’t have a proven history or a distinguishing factor to help drive demand, will need to be priced aggressively from the start and closely monitored using a mark-down schedule to avoid aging issues.
Consider using an inventory management system that offers real transaction data. An inventory management system should help identify core vehicles and notify you when action needs to be taken, so you can keep that inventory moving and your bottom line growing.
Tim Zierden is the general manager of inventory solutions at DealerTrack, Inc. For more information, visit www.DealerTrack.com.0
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- Keep Your Vehicle Inventory On The Move—And Maximize Profits - March 25, 2009