Two changes necessary for stocking vehicles in today’s marketplace

by dpollak on 07/27/2009 · View Comments

For some time now all of us in the industry have been feeling the pain of sourcing vehicles. As I’ve written in the past, I believe that most of the pain has to do with the fact that there is an increased demand at the wholesale level causing prices to spiral upwards. In other words, it’s not really about a shortage of vehicles (yet) but rather an uncertainty about how to make retail money at the current wholesale price levels.

I submit that the difficulty in sourcing cars is serving to expose a fundamental weakness in our dealerships. For too long our used car department has depended on what I call happenstance or chance stocking. In other words, our used car inventory reflects what we happen to trade for or what we happen to be able to buy at today’s local auction. Today we’re not able to trade for enough, nor are we able to source enough at the local auction for reasonable prices. Consequently everyone is feeling pain.

I think that we should all pause and take note of the fact that the way we’ve stocked in the past isn’t working today and probably won’t work in the future. Specifically it’s time to do two things differently. First we must move from happenstance inventory to engineered inventory. Engineered inventory means that somebody sits down on a regular basis and creates a list of ideal inventory units based on what is hot in the market right now. The dealership’s past performance with certain vehicles is relevant but not necessarily the driver of what should be on the lot today. Dealerships have facilities, people and capital that can be used to sell any type of vehicle, and it only makes sense to apply these assets to vehicles that have the highest demand and least supply.

These same vehicles then need to be found. It’s not realistic to expect that they’re all going to be traded in or available at the local auction. Someone needs to scour the landscape of auctions, dealers, and private sellers to find the vehicles. They also need to do an analysis to determine how much they can be sold for in order to know how much to pay to acquire them. All of these tasks take a great deal of time and generally much more than a typical used car manager is capable of committing. I contend, however, that the time taken to engineer inventory is not time spent, but rather time invested because you are engineering your own success. This stands in stark contrast to happenstance stocking which is much faster and easier but won’t produce reliable results any longer.

This brings me to the second change that should be made. I propose that there needs to be someone in the dealership that has the time and skill required to create the engineered list, determine target acquisition values and source the vehicles. This person, who might be considered a “stocking assistant” may already on your payroll. They simply need to be someone that has an analytical mind and enjoys working with data and the internet. There are tools today that will make their time invested very productive and the outcomes very fruitful.

This afternoon I received a call from a former Chrysler dealer that asked me what I thought he should do next. After I spoke with him for a few minutes, it was clear to me that he understood used cars and technology very well. I told him that I thought that our industry would soon be placing high premiums on talents like his if applied as a stocking assistant. I think that some dealerships may use underutilized existing staff, full-time positions and contractor positions. I would like to hear from any individual like the one who called today, interested in serving in this capacity. I would also appreciate hearing from any dealership that would like to be connected to one of these individuals. I would assume responsibility of training both the philosophy and the technology of producing an engineered inventory. If you’re an individual or dealership interested in this approach, feel free to post a response to this blog or respond to me by email (dpollak@vauto.com) or phone (630-926-9016).

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Tagged as: Automobile, Automotive, Business and Economy, Car dealership, Chrysler, Motoring, Shopping, Used car

  • Dale,
    This discussion makes it all the more important to consider the 'tweak' to the software to filter out vehicles without fresh pricing, i.e. exclude vehicles listed online for over 45 days (or 30 that's open for discussion) at the same price. This way you are looking at the 'players' in the used car market, and not skewing numbers with dealers just throwing stuff out there and not managing it. You would typically see a lower price I believe and a quicker turn rate on most vehicles. It's the same thing as the traditional evaluation of a dealer's used car inventory where the consultant comes in and immediately excludes the 'dead' inventory that the UCM doesn't want to deal with and tells the dealer what kind of inventory he is really selling out of, excluding the dead inventory that should be marked down or wholesaled.
  • Scott,

    Thank you so much for your note. I’ve got quite a few of these inventory engineering departments starting all over the country. Yes, we will provide you with training, job descriptions and even proposed compensation programs if you’d like. I also want to network you with the other groups that are implementing the same strategy. There’s much to be learned from this type of exchange. I’m going to have your vAuto Performance Manager contact you to discuss training as well as Mandi Fang, who will help you network into this new community. Please feel free to reach out to me at any time if I can be of personal assistance. Congratulations on this important step.
  • Scott Wood
    Hi Dale -

    I work for Don Elliott's group and we've just committed to bring our used car marketing / inventory engineering under our SunStar Network umbrella. We now have responsibility for all Ecommerce and digital marketing for five dealerships and I, for one, am excited about adding this element. It's early in the game, but I want to learn all I can and develop the capability to offer our services to others. Your offer to train on the philosophy and technology is appreciated -- please count me in.
  • Ben Gaggero
    I forgot to mention...I would be honored to become a student. I'm ready to climb under a wing of a fresh, intelligent mentor of this approach. It is time! Let the "dinosaurs" make history, we'll make the future.
  • Ben Gaggero
    So true. ALOT TO SAY ON THIS TOPIC...I've been in the NorthWest car business since 1990. The product that moves brings all the dough (everywhere)and the product that is less desirable is even getting attention. Fleet remarketted vehicles are edgier and more expensive. Pay more, get less, and the banks aren't advancing as much... What now? Inventory Engineer...yep... I've been a buyer for 10+ years travelling and expecting to come home with an awesome mix of money-makers every time I leave. Frustration sets in and you either come home with nothing or you just bought cars that don't sell because "you ripped em". What's a "rip"? Definately NOT something that sits and collects dust and days in stock. It seems to me that everyone is experiencing the short-falls of this market and availability. As soon as we as a Dealer took a closer look at what was and is actually turning, making solid profits and where it was available, the job of stocking was much easier!!! We compiled a buylist via vauto and found that this inventory is readily available on-line. Got online and paid top dollar for the right mix. WE EXPLODED WITH VOLUME. Profits were lighter than expected, but "profits and volume" neverless. I helped streamline the on-line searching and purchasing process to the point of eliminating my position. I guess you could call my position eliminated and replaced with an "Inventory Engineer". It saves payroll huge amounts, saves on travel expenses, and enguages under-performing, high paid positions. As much as I dont want to admit the facts, Used car managers are going away. No doubt, Inventory Engineers with current, factual information are the future.
  • kkocourek
    Dale,

    Sign me up for an inventory assistant. I am looking for a person to do exactly what you described. I already have one but I would like to train two for the four stores.

    Keith Kocourek
  • dpollak
    I received the following observations from a dealer in the Northeast. What are your thoughts?

    Good Afternoon Gentlemen,

    Just wanted to send off a big thanks for the “Goosing” .. Quite refreshing..

    I had another observation I wanted to make as well concerning auctions and sourcing. I have not seen anyone mention the current fleet situation and its affect on the current supply of used units. The manufacturers here in the northeast, at least, are in a very low inventory situation. The off lease inventory is just not being replenished as in years past and the fleet inventory is A. High Mileage and B. Far and few between. The manufacturers are quite aware that we (Used inventory end users) are in a situation where we will pay almost anything to stock our shelves. And there are just enough of us week in and week out to keep their mantra of “No sale this week will just come back next week” until it sells at the manufacturers price. I personally think until the Fleet inventory levels start to increase this will be the market. 06’s have pretty much dried up and once the 07’s are gone we will have a very tight market. 08 off lease inventory is not going to be out there for any of the domestics..

    Again thanks for the “Brewski’s”

    Regards
    Bill
  • dpollak
    I’ve gotten a lot of inquiries like the one that follows asking if there are dealerships that would be willing to work with an off-site contractor that is trained and equipped with tools for inventory engineering. I personally see no need to have this individual on-site. I’d like to hear from dealerships.

    Any feedback on this position as an offsite position? Just interested to see what dealers are thinking.


    Thanks.
  • dpollak
    James,

    Thanks so much for your note. I’ve passed your name on to Rob Lee, our Director of User Groups. He will be in touch with you soon to discuss opportunities.

    Dale
  • James Hutmacher
    Dale
    very interesting and insightful post. I agree that 'happenstance" is all too often the preferred method of stocking. Thank god for sotware and other tools that can make purposeful stocking a reality. As a General Manager I took an extra amount of ownership in my used inventory. It was imperitive for me to know what I needed to stock and where they could be obtained with the least amount of expense. Unfortunately my used car managers while good at somethings were not good at or too enthused about analyzing data. They would much rather appraise a car or work a deal. So this was something I took on and believe it was a key contributor to a very large increase in volume and gross, not to mention it doesn't hurt the ego too have similar program cars as your nearest competitor only the 4 you had you owned for 1500 less because you were willing to think outside the box and find the right place to pick them up. It required a lot off due dilgence and a willingness to accept new methods or unconventional methods of purchasing inventory. I would love to work with yourself and anyone in
    need of an experienced buyer and operator. Feel free to contact me any time. 2106023180
  • John- How do you pay them? Can you foward me a training plan and job description? chris.irwin@irwinzone.com
  • dpollak
    Dale - I read your blog yesterday, it is a pretty accurate description of where dealerships need to go in order to be successful in today’s world. Four months ago I let our Used Car Manager go and it ended up being a great thing. Six weeks ago I hired an Inventory Purchasing and Pricing Manager. He is 22, just graduated from college, and doesn’t know or care about cars. He just analyzes data and makes investment decisions. It took less than one month to get him trained, so it can definitely be done.

    -John
  • JCreran
    The fine print was running out of control here in the NY/NJ Metro Market. For those that do not know what it is, dealers are advertising cars for approximately $3000 less then everyone else for choice internet search position, but when you go in you see fine print that says something along the lines of: Price shown is amount financed after $2995.00 down payment, does not include tax, title, blah, blah, blah....

    Plenty of vendors and managers told me to do it, but I resisted. I don't hate the players, but I did not like that game. I sold just as many cars without stooping to that level. I believe it was deceptive and dirty then, and I believe that now. Trader and Cars have pretty much eliminated it on their sites and leveled out the pricing field. At the end of the day, I believe the cleanest dealer and cleanest car wins the business.

    I have always worked for high volume dealers that had at least one full time buyer. The organization I am with now believes it is the job of the used car manager to buy, sell and organize the department. That is an easier task when you are selling less then 60 pre-owned per month, but when you are cracking 100 units month in and out plus wholesale business, it hits the point of burn out. I believe you need a full time buyer when you are dealing in that volume. Constantly scouring all your avenues to buy cars properly is a full time job. When my goal was builing a nationally ranked Honda Certified Dept, I can tell you I was sitting on my lap-top at 2am on Sunday nights when I had a tip that Remarketing was dropping prices 10-20%.

    For those of you that have full time buyers, what is your compensation package for them? I'd love to hear how others handle this. We used to pay the buyer per car and a percentage of the department.

    -John C
  • Below is a note similar to many others that I've receved. I've been asked to keep most of their names confidential, but suffice it to say there areplenty of individuals that are interested in working in this capacity. I think that it also makes for a good business model for someone that wants to work for themselves.

    I encourage other like-minded individuals to email me or post, as well as dealerships that would like to get connected with such individuals.

    Dale-

    I really enjoyed reading your post on the changes necessary in stocking vehicles in this marketplace. I agree that it is going to take a dedicated person going forward to oversee this part of the operation. Still having problems getting a complete buy in at my dealership on the process, just when it is convenient it seems. Your offer has been mentioned, just not acted upon by others. I know there is such a huge opportunity there, and that is what bothers me. If you know of someone in the area looking for a "inventory engineer", I would be interested in this task. Or possibly contract with a couple of dealerships. I believe this is the future of a successful used car operation, and want to be in front of the curve. I believe that this position should:

    -Build a buy list based off of margin, volume, and optimization

    -Find were to purchase these vehicles (ie: auctions, private party, dealers/wholesalers)

    -Purchase these vehicles via simulcast or direct buyers were and what to purchase. I think that auction simulcasts are a very important piece of this puzzle, as you can access so many more units and make the most of your time.

    -Price all used vehicles

    Many and most facets of this position could be handled offsite. As someone in Illinois could actually handle most of these tasks for a dealer in Ohio , with proper communication and trust... What are your thoughts on this?
  • Dear Bonkers in Yonkers...

    Is it legal? Well, this depends on state laws but it is certainly deceptive. I know that both Cars.com and AutoTrader don't want it to occur, and they are willing to send out cease and desist letters to offending dealers. These letters inform dealers that they must quit the practice or be kicked off the site. How willing they are to enforce the policy, I'm not sure.

    I have adjusted my software to spot such disclaimers and add back in the cash or trade equivalent. I realize however, that this only corrects the problem for the dealer, but does not address the problem for the consumer. I have to believe that if enough dealers do it, it will rise to the attention of enforcement agencies and it will eventually subside. In the meantime, it’s really an unfortunate problem for all dealers that commit themselves to straight and transparent practices.
  • What specific fine print are you talking about? Thanks

    Chris
  • CarGuyNY
    Dale,
    Any insight on the "net" bandits we seem to be running into here in the great North of NY (Yanks Rule!)...I am getting frustrated with the cash down/minimum trade fine print we see a lot of on the net around here. I went off on my Internet guy Monday after I found out the $385 we made on a 15-day old Chrysler 300 was full list...he stayed in the top 3 but 5 of the 8 top guys all had the "fine" print on their pricing. Believe me he is aware of it now!! Is this still legal?
    Signed...Bonkers in Yonkers!!
  • irwinzone
    Dale- We're currently in the process of trying to come up with this position and what it entails. Rob Lee sent me over a general job description. I've also been in contact with Cary Donovan, Jack Anderson, and Jim Kelley. I had basically envisioned the position similar to an accounting office position ($12-$14/hour to start with as we have no precedent for the position--would eventually move to hourly/salary plus bonus). We'd bring in a Manheim rep to train them on Manheim/Adesa, get them trained on vAuto, and bring in a CarFax rep. They'd spend much of their 40 hour week making sure all of our vehicles are fully merchandised online and looking throughout the country for vehicles that may be of interest to us (for example 2007 Camry LE's with 20-30K miles might be $1,000 cheaper in a certain part of the country than the Northeast). The Assistant would essentially take, for example, a 1,000 vehicle run list and narrow down so that our Used Car Manager could then bid on/set proxy bids on those vehicles. They'd also work on completing buy lists for any buyers that we have at physical auctions. Any thoughts from yourself or colleagues would be much appreciated.

    I had an interesting talk with my used car manager last night who primarily looks at Ford and Toyota Factory sales. We have a primary buyer but he struck out all last week. I believe this only further highlights the need for this Stocking Assistant position as: 1. If you're just looking at Ford and Toyota you're missing the other 2/3 of the Used Car Market; 2. You can't limit yourself to one geographic area/only a couple of auctions--sourcing vehicles needs to be on a national scale to properly give yourself the best chance to succeed. Bottom Line- a used car manager can't realistically do all of this!

    I had just taken what Rob had sent to me and added a couple of items.

    •Work with management to define ‘Buy List' criteria
    -Identify stocking units to meet the market supply
    -Identify stocked units within segments
    •Build Buy List for review by appropriate management (based on defined acquisition and exit strategies)
    •Daily distribution of the ‘Buy List’ to designated buyers
    •Preview presale auction lists and research other sources (eBay Motors etc) to locate desired units (year, make, model, trim)
    •Run reports (condition reports, Carfax reports) to ensure the vehicles meet dealership standards
    •Identify and communicate location of desired units to buyer
    •Call and/or e-mail dealers to inquire on desired vehicles
    •Ongoing comparison of the buy list to what was purchased, summary report of comparison delivered to: ________
    •Ensuring all vehicles are fully merchandised on our physical and virtual lot
    •Creating tags for vehicles if needed
  • Dale-I would be most interested in being connected to a potential "stocking assistant" along with your offer to mentor the philosophy and technolgy necessary to create an "engineered" used inventory. I look forward to discussing this opportunity in greater detail in the near future. Best wishes, Bill.
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