vAuto.com subscriber here with an out of the box concept that only you could tackle If this idea has merit, I thought you’d want to pass this around to your most trusted advisors, so I put this on my site for easy distribution.
I was a self employed stock trader for nearly a decade. I’ve been in the Car business for last 5 years as Used Car Manager now as Marketing Director of a very large and fast growing Used Car retailer.
While working as Used Car Manager & Marketing Director of a small Chevrolet store a few years ago, I’ve noticed a nearly perfect correlation between the Manheim’s Used Vehicle Index and the S&P500. I produced charts of both indexes with identical 11 year periods and made annotations.
The correlations of direction of the trend and the dates of trend changes are just plain scary.
Notice the correlation of the direction of trends AND the dates the trends break (up and down).
Assuming the correlation is valid, this brings me to 2 issues.
#1). Used Vehicle Inventory management techniques can now be triggered by a “proprietary” outside indicator.
#2). Used Vehicle Inventory can be hedged against “market conditions” that are out the control of management.
First, the charts that I produced for management back in 2006, then onto my thoughts.
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5 users responded in this post
Joe,
Very cool find…as an ex broker/trader myself - I love it.
Dale - what’s your take on it? Ever seen this before?
Eric
I concur with Eric; very interesting data. All goes well with you and Todd I trust?
The stock market is a forward looking marketplace and we’re clearly in a full blown bear market. My proprietary Bull-Bear indicator went from Bull to Bear in early Jan 2008. Crude broke thru $100 a bbl 30 days later.
Funny how all the markets inter-connect
Joe
Hi Eric, Charles, Dale and the group.
This discovery connects directly with Dale’s newest post “45 to Thrive”. How does this all tie into day to day operations?
If the Manheim Index is rising (as seen in the S&P500), business is good, Inventory aging is important, but not mission critical. You can easily get away with “don’t worry, we’ll sell it, there’s an ass for every seat”. Used vehicle market prices are consistent and the marketplace is liquid (lots of players at the auctions) and business overall is doing fine.
In a bear market, everything is different.
Everyone will work twice as hard for half the pay because EVERYTHING is killing profits. Floor traffic is lower causing fewer turns (and we all know what fewer turns does to the operation). You’ll be taking shorter deals because you need to feed your starving reps, plus you’ll need to turn the unit to keep your inventory marked to market (so the phone will ring!!). Interest expenses are higher and higher interest rates dampen demand.
Can it get any worse?
Just when you need to off a unit at auction that wont sell, this market causes competitors begin to thin out which make the auctions become less liquid so supply and demand have a hard time finding each other.
Is there a silver lining here?
Yes, but it depends on what team your on. There are 2 types of Used Car players… The Leaders and The Laggards. In a strange way, The Leaders welcome a bear market because in good times both players make money, but Bear markets kill weaker competitors and cause Leaders to re-evaluate every nook and cranny on the balance sheet. Bear markets always come to an end and the leader is lean and mean!
During the bear market, The Leaders are marked to market, taking slim deals, turning that inventory and stealing market share. Laggards see it all, yet sit on their hands. Laggards hate to take a loss so they spread their pain out over months and months and hope for things to get better.
Are we ready to Rumble?!? Get prepared, White water is ahead!
Joe
government seized car autions…
I like your post. Good stuff. Keep them coming :)…
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