Those of You In Super Competitve Markets, How Do You Even Stand Out?

[billnj]

I think that a big part of our success (were in northeast NJ) with the used cars is broadening our horizons with what to stock. I walk our competitions lots on a regular basis and have found that a number of them are stocking a lot of more banal stuff. I've found that, at least in our market, the typical "program cars" don't generate high gross.

Weve been doing rather well with oddball stuff, and the grosses are certainly higher.

 

[ed.brooks]

Thank you.. You raise another question, when do you know when to increase your inventory? For used cars.. If a dealership stays the same offering 100 used cars, month after month, for years will they never grow? Even with increased marketing and dealership changes, how does the dealership know when to add more? Sales? But if they never take risks to increase their inventory, how will they ever see their sales increase? You or someone else here said dealers turn their inventory 6 times a year, so if they increased their inventory by 25 used cars, would they sell another 150/year if the marketing matches the change?

And if so, in order to increase, what holds a dealer back from doing so with their inventory?

My boss, Dale Pollak, hasn't just written on this subject, he's written BOOKS on the subject. Dale contends (as recently as this blog post) that "there is only one reason ever to adjust inventory up or down, and that is to regulate your used vehicle inventory turn rate."

While you are correct the average* dealer turns their inventory 6 times a year, we see dealers turning 13-14 turns on a regular basis. 18-20 turns is exceptional, but not unheard of.

*Average = The best of the worst, the worst of the best

 

[ddavis]

The most effective way to increase your inventory is to lower your days to market. It's a beautiful thing because it doesn't cost anything.

 

[mcampo2501]

Ed, Velocity sales suggests that by having the lease expensive cars on the market, you'll turn your inventory faster and by the end of the year you'll make exponentially more money than if you had waited around to get true market value. Mathematically this makes plenty of sense, but like uncle Joe would say, "selling cars is a team sport". You can't turn your inventory 13+ times a year if that isn't the culture at the dealership. I don't know that the turn rate is a fair measure of success, so saying that having a 6x yearly turn is the best of the worst or the worst of the best is more of an opinion. If you can increase your turn by just one or two cycles without it costing you any gross, then that (to me) is just as much of a success as giving away all your cars to turn them 18 times. The former obviously being much more achievable if your dealership isn't ready for a revolution. Ya know...

 

[ddavis]

Mike, the whole velocity approach teaches that average gross profit isn't as relevant when market values are dictated by the internet.

Departmental net profit has always been the most important measure but we used average gross profit to forecast it.

 

[ed.brooks]

Ed, Velocity sales suggests that by having the lease expensive cars on the market, you'll turn your inventory faster and by the end of the year you'll make exponentially more money than if you had waited around to get true market value. Mathematically this makes plenty of sense, but like uncle Joe would say, "selling cars is a team sport". You can't turn your inventory 13+ times a year if that isn't the culture at the dealership. I don't know that the turn rate is a fair measure of success, so saying that having a 6x yearly turn is the best of the worst or the worst of the best is more of an opinion. If you can increase your turn by just one or two cycles without it costing you any gross, then that (to me) is just as much of a success as giving away all your cars to turn them 18 times. The former obviously being much more achievable if your dealership isn't ready for a revolution. Ya know...

Mike, The Velocity Philosophy isn't really about being the least expensive at all. It's much more about having the exact right price dialed in on each car. Each car needs to be priced individually based on a number of factors: the supply vs. demand on the specific vehicle in your specific market, knowing exactly where the competition is priced, how many days the car has been in inventory, etc.

But you are correct that there is a philosophical shift, a cultural shift, that has occurred within the most successful dealerships and dealer groups around the country. Most of these stores have embraced the idea that continuing 'Old School' strategies in a vastly different marketplace of shrinking margins and a much better informed buying public is simply not sustainable.

I do take exception to the idea that a dealer needs to "give away all his cars" to attain Velocity. I'd respectfully ask you to watch Dale's recorded webinar from earlier in the week to see a dealer that is getting "true market value" from his inventory AND achieving a great turn rate.

Webinar Link: Dale Pollak presents "Provisioning Best Practices"

 

[mcampo2501]

Doug, don't you think that there's a point where this would become distructive? I'm not saying that you should just mark up every trade $5000 and wait for it to sell, I'm just saying that it's not feesable for all dealers to take on the velocity approach. Bill mentioned buying more unique inventory as a way to increase profits. If you limit your inventory to rare, well cared for vehicles, you might not have a huge turn but your deparmental net profit could be just as strong as those who take the position of selling strictly on a turn. Even in this scenario, cars need to be market priced. There are snippets that can be taken from the velocity approach and applied to any dealership, I just don't believe in using the turn count as a measure of success. I've seen it work both ways...

 

[mcampo2501]

I do take exception to the idea that a dealer needs to "give away all his cars" to attain Velocity. I'd respectfully ask you to watch Dale's recorded webinar from earlier in the week to see a dealer that is getting "true market value" from his inventory AND achieving a great turn rate.

Ed, I'm not so naive to think that this approach doesn't work. The book sells very well and there are clearly dealers that have used to to transform their business. I also know the people on TV at 3:00am that say they've made millions of dollars after calling this 1800 number to get information on how to transform their lives by selling junk on ebay are real people. In small print, it goes on to say, "these results are not common". What I'm saying is that you can't make one approach work for everyone in every market, in every situation. I'm not arguing with you. I like the velocity approach. I just don't think it's the only way, and I don't think that one not practicing it should be marginalized to mediocrity.

 

[ddavis]

Doug, don't you think that there's a point where this would become distructive? I'm not saying that you should just mark up every trade $5000 and wait for it to sell, I'm just saying that it's not feesable for all dealers to take on the velocity approach. Bill mentioned buying more unique inventory as a way to increase profits. If you limit your inventory to rare, well cared for vehicles, you might not have a huge turn but your deparmental net profit could be just as strong as those who take the position of selling strictly on a turn. Even in this scenario, cars need to be market priced. There are snippets that can be taken from the velocity approach and applied to any dealership, I just don't believe in using the turn count as a measure of success. I've seen it work both ways...

Mike,

I was in the car business long before the internet. I had a reputation of being a "high gross" guy. I actually hate the thought of just giving away cars.

I've watched Used Car Managers that try to steal every trade. Like your rare car scenario, they can't steal enough of them.

You can't ignore the significance of having market-based pricing when 92% of consumers use it to plan their purchase. If a vehicle books for $8400 but there is a glut of them and the average selling price is $9900, how does average gross profit figure in? This is how most Used Car Managers think without knowing what they are selling for.

I have an old friend in Dallas that is the General Manager of a store. He has about 65 spaces to park used cars. He is selling 180 to 200 used cars per month. Yes, his average gross profit has gone down but his departmental profit is HUGE.

 

[mcampo2501]

Doug, If his lot were four times bigger and his turn numbers were reduced from 36 times a year to 9 times a year, would you consider him to be less successful? That's the only point I was trying to make. Turning your inventory 6 times a year doesn't mean you're under-performing, and a dealership that turns it's inventory 20 times a year is only better off if the store is actually netting a greater profit. That statement had hit me the wrong way and I'm probably making too big a deal of it. I'll leave it alone...