Other dealers arrive at the same conclusion as they evaluate inventory age by cost segment. “I could also expect a reduction in unit volume as average cost increased.” “As I managed my $13,000 cost target, I could usually expect an increase in monthly volume of one unit when we landed $100 below the goal,” he says. For Williams, this analysis taught him that lower-cost cars turn more quickly. Evaluate your inventory turn by cost segment. It helps create an inventory mix that delineates the value proposition between new and used vehicles for customers and, if managed correctly, can mitigate the preferences of individual buyers/managers, who like stocking higher-cost cars.Ģ. For example, if his average new vehicle cost is $26,000, his average cost goal in used vehicles is $13,000. I like Williams’ formula: He strives to maintain his average used vehicle cost at 50 percent of his average new vehicle cost. Recognize the relationship between average new/used vehicle costs. The key question then becomes, “OK, Dale, what’s the best way to set and manage our inventory cost targets?” Here are three best practices I’ve gleaned from Williams and other dealers:ġ. There are far more potential buyers for lower-priced vehicles, and these units also typically pose less depreciation and valuation risk than their higher-priced counterparts. Some dealers may question this thinking but, if you step back, it makes sense. His take: “The further you drive down your cost, the quicker your inventory turns. One of these dealers is Bradley Williams, general manager for Rivertown Buick GMC in Columbus, Ga. They live and breathe the metric, and their results prove the benefit of their cost-minded commitment. Among the best-performing dealers I know, the average cost of their inventory is a topic of conversation and investigation every day. Third, dealers who do proactively manage their average used vehicle inventory cost tend to sell more cars in less time than dealers who don’t. Second, even if a dealer recognizes how/why a lower average inventory cost helps a used vehicle department reach its peak performance potential, it’s easy to look the other way when buyers or managers consistently pay too much for trade-ins or auction purchases. After all, cars are more expensive and, if you want to play in today’s highly competitive used vehicle market, you’ve got to pay. It’s becoming more critical for dealers to pay close attention to the average cost of their used vehicle inventory.įirst, today’s market can lead dealers to believe that managing your average used vehicle cost isn’t important.
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