By Kathryn Pomroy
To the consumer, dealer inventory is very personal. If within a 100-mile radius, a consumer finds a dozen vehicles that somewhat match what they’re looking for, and all but one are the color black, shopping online or visiting the idea of switching brands become viable options.
On some level, nearly every franchise dealer carries new vehicle inventory that misses the mark for their specific market. This reality owes to production decisions and factory allocation, as well as the dealer’s ability to outfit orders with the proper equipment, colors, and trim levels to meet customer demand. Not an easy task.
Although the best dealers recognize this situation as part of doing business, adopting pricing strategies and proper inventory management systems can help dealers retail stale inventory, so that they can bring in more of the units their market craves.
Prioritizing inventory management
Generally, dealers don’t make the age of their inventory a priority at the management level. Although they should. And, in recent years, with rising sales volumes and low-interest rates, the task of minimizing inventory age has become an even lower priority. Fewer turns, holding costs and lost sales only add to further inventory management issues.
On top of that, the decline in profit margins makes selling more cars a necessity just to sustain the revenue many dealerships have experienced in past years. As a result, dealers are faced with the historically-difficult equation of inventorying the right vehicles at the right price. A problem that is now more difficult than ever to solve. After all, dealers understand that if a vehicle sits on their lot for a long time, the financing costs can potentially eat up any profit.
Inventory management systems
There are possibly dozens of inventory management services. All it takes is a search on Google to realize the importance of keeping track of dealers’ assets; where they are and what they’re worth. Simply, an inventory management system is a tool that oversees all of a company’s inventory, and often includes a way to track sales. Many of the failures dealerships experience, such as low grosses and aged inventory, stem from simply not having a system in place.
In a recent interview, Pat Ringold, owner of Benna Ford in Superior, WI (as well as several other dealerships in the midwest) spoke about his success with Vin Solutions inventory management solution. Overall, Pat’s experience is positive.
“On the pre-owned side, the Vin Solutions product is very clean and user-friendly. In real-time our sales team can see how many pre-owned vehicles, in our case, a truck like the F-150, are in the market, how long they’ve been in the market, and at what price point. The program also makes it much easier for our team to follow-up on our customers’ wish-lists.”
“We can also track our new car inventory. We go back a year and look at true turns, see what rebates and discounts came from the OEM, then look at what we sold and how the rebates affected the market to determine a baseline.”
Attuned to market and inventory management strategies
Many dealers who are more market-attuned to their pricing have made it a priority to minimize age, which has made it possible to strike a balance between maximizing front-end gross profit and inventory turns. These same dealers have also become more transparent in their pricing strategies, which helps attract more buyers.
Efficiency-focused inventory management strategies also help dealers bring their vehicles to market more quickly, equalling less lost time for reconditioning, vehicle inspection, pricing, etc. And, by optimizing new and used vehicles to meet market demand, and retailing them more quickly, they’ve been able to narrow the gap between “sales-ready” and “sold”.
Used car inventory management
This may be a no-brainer, but when it comes to moving used-cars off your lot, reliability and price stand out as key factors in the minds of most consumers. Unfortunately, the approval time it takes from when a car drives on the lot to when it exits the service department and is priced is often far too long. Although the service department can be the bread and butter for a dealership, a hold-up here can steal away profits.
Dealerships have little say what kind of used inventory they take in on trade, but every used vehicle has an owner out there somewhere. That’s why marketing also becomes such a crucial asset to any dealership with used inventory and why dealers must become hyper-efficient in the way they market and manage their used car inventories. Also, salespeople must be educated and pricing must be credible to realize a faster path to sale.
Pat emphasizes that sales are predicated by the buy, so he has save-a-deals days where the staff looks at what they did last year at the same time in the same month, changes in rebates, and what their owner base looks like.
“You take in the wrong cars or trucks on trade and you’ve got vehicles that are sitting on your lot costing you money. In other words, inventory control is largely based on the right vehicle.”
With 73-78% customer retention, and five “2019 Best of the Best” awards for Best New Car dealership, Best Used Car Dealership, Best Salesperson, and Best Auto Care, it’s safe to say Pat and the whole team at Benna Ford are hitting all the marks with a good selection of inventory, a powerful online presence, knowledgeable staff, and a customer-faced culture.
Streamlining the path a vehicle takes from acquisition to merchandising allows dealers to reduce holding costs and improves inventory turn. If you don’t know your T2L or you’re spending way too much time to manage your T2L, it’s time to take a step back. Improving this productivity measurement is inexpensive, especially when you consider the alternative – lagging used car inventory turn and already-stale cars sitting on the lot.
T2L workflow software from Rapid Recon is a cost-effective way to measure accountability. The T2L (Time to Line) Metric follows dealers money and measures each step from acquisition to frontline ready. According to Dennis McGinn, founder and CEO of Rapid Recon, dealers using automated T2L put new inventory on their lots, see stronger grosses, and increase their inventory turns.
The main premise is that removing waste, delays and costs associated with reconditioning used cars, dealers get vehicles ready for sale in three to five days vs. the standard time of 10 to 21 days. This advantage provides sales teams with information about which cars are in recon, so that they can market and sell upon acquisition. It also helps sales sell more vehicles at higher commissions because T2L holds grosses.
Inventory best practices
For most dealerships, moving inventory is vital to success. That’s a given. Knowing when and how to implement inventory management systems and marketing to your customers may seem obvious. The fact that many dealerships often put marketing and inventory management at the bottom of their to-do list, especially when sales are good, can have dealers questioning if a car is still on their lot, where it is, or if it has been sold.
On the other hand, when dealers apply inventory management best practices with discipline and due diligence, they soon find that aging inventory is essentially a moot issue.