Now’s the time to make lemonade. Conditions are harsh, but dealers are some of the most tenacious operators out there and plenty are thriving even in these conditions. There are benefits to automotive retail even now. I’ll take a moment to just highlight two. 

Part 1: Staying Lean

Craig White recently posted a blog (summarized below) that shared the virtues of staying lean as your inventory has been forced down to the lighter end that we find ourselves in this time. 

I get a little crazy about pushing the envelope and seeing how lean I can run the inventory and create the highest turn rate possible. That’s easier to do when wholesale inventory is plentiful, and you never have to worry about not being able to source cars. The highest turn rate I have achieved is 24 times a year at one of our Lexus stores. We were running that store so lean, cars were selling before they arrived at the dealership from auctions halfway across the country and recording record months with no aging issues.

I was reflecting back to that time this past Wednesday during a consulting call I was on for an investment firm that was looking to invest in publicly traded automotive companies, and it finally hit me. That’s exactly what dealers are being forced to do in today’s COVID-19 pandemic disrupted used car market. Better Inventory Control, learning how to do more with less inventory.

Dealers across the country are setting sales records month after month with less inventory, willingly or unwillingly, and soaring gross profits have followed right behind. For example, according to Cox Automotive statistics dealer inventories were running at 100 percent of their levels in May of 2019. By mid-June, dealer inventories were running at 88 percent of levels in June of 2019. As of the third week in July of 2020, dealer inventories are at 87 percent of where they were this time last year.

Dealers, and specifically used car managers, should step back for a moment and examine what took place in this unprecedented time. If you haven’t noticed, better inventory control creates an atmosphere among customers similar to a piranha feeding frenzy. You have the right car, maybe the only car, at the right price and customers are willing to pay your asking price….This [time] should serve as a reminder to all of us that, intentional or not, dealers have all proven that you can do more with less and when it’s done right, it means really good things for the bottom line of your department and the dealership. You should never revert back to the stock more sell more strategy.

Part 2: Making the Most of Trades

As wholesale prices continue to rise, fourteenth consecutive week in a row, we are all waiting to see those values level off and Craig’s right we need to buy carefully based on the peak of the market. The glut that we were all expecting from Hertz has been structured to avoid the fire sale, so the flattening of prices is not expected to massively affect values as we had expected much earlier. But Jasen Rice is right too. He wrote this piece well before the pandemic, but the wisdom still holds. You still need to buy and replenish even now even during this pandemic.

My advice to dealers is focus on your trades. Now is the time to get better at trades overall. Since you are likely to have to be leaner you’ve got to find inventory that you can make money on. Cars are expensive now and the best source of reasonable inventory is making sure that you are getting every direct from consumer opportunity you can. Get your customers involved in the trade get a good price you can make money on. We like to use MAX My Trade to get people involved, but the principles are the same if you are working with your own trade process. Watch Patrick and Tim’s webinar as they go through the ins and out of how to get the most of your trades now. 

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Craig White, Founder of Profitable Pre Owned
Craig White started profitablepreowned.com to share all the things he wished he had been taught early in his career. He brings over 30 years of experience in retail automotive including Pre-Owned Director roles at Ourisman Automotive Group, Audi South Atlanta, Jim Ellis Automotive Dealerships, and currently at Asbury Automotive Group. You can contact Craig at craig@profitablepreowned.com.