Literally, every day, we are all watching gas prices skyrocket. There couldn’t be any environment that more dramatically highlights the fact that the theory of dealers stocking based on their “core inventory” is just plain wrong. If any dealer today stocked their lot based on their past core inventory, they’d be purchasing gas guzzlers and, quite possibly, avoiding the purchase of today’s hot selling, gas-sipping vehicles.

We are now seeing reports of both Ford and GM shutting down manufacturing plants that build their large SUV’s and pickup trucks and shifting production to more fuel-efficient models. What if Ford and GM were, instead, using the same philosophy that some companies are promoting to dealers for their used vehicle stocking? In other words, what if Ford and GM kept producing and stocking their dealers with “core inventory,” (i.e., lots of trucks and SUV’s)? They and their dealers would be guilty of the worst management malpractice imaginable.

Today, I spoke to a highly successful used car director of a large multi-franchise organization. His comments made me realize that the absurdity of “core inventory” goes well beyond the issue of gas prices. He said that, as an experiment, they stopped stocking used Infiniti’s at their Infiniti dealership. They experimented with high volume, off-brand vehicles, such as Impala’s and Malibu’s. I asked him if he was sure he knew what he was doing, and he told me that they were selling like “hotcakes.”

He said that we all get hung up on the notion that we should stock according to our past sales and/or in accordance with, our franchise brand. Yes, it may be true, he told me, that there is some natural traffic for these vehicles, but that does not necessarily mean that they are the most demanded products in the market. Properly used, the internet allows dealers to be successful with products that are hot, but not necessarily their brand or part of their past core. Remember, he said, that no used car manager ever got fired for not selling the right mix of used makes and models.

So why is it hard for many dealerships to do what my friend has done at his Infiniti store? I think that the answer lies in the fact that we are all more comfortable operating in a zone of comfort and familiarity. Think about how hard it would be for someone very knowledgeable and familiar with Infiniti’s to say, “there might be something better out there, and I’m gonna give it a try.” It must have been really hard for that Infiniti manager to go out and pull the trigger and buy a bunch of Impala’s and Malibu’s. It would be like waking up one day and putting your watch on your other wrist and deciding to part your hair on the other side. It’s just really hard to do! So we don’t do it, even if there’s a chance that it might work out better. It’s a lot easier for us to go with the inventory that we know, rather than venturing out and taking the risk associated with buying something different.

The good news for the industry is that there is now technology that can analyze any market and tell a manager, at the level of year, make, model and specific equipment, which are the hottest vehicles at the moment, based on volume and/or gross. It can even show you where to go to buy those vehicles. This takes much of the risk and uncertainty out of the equation. So if you haven’t seen this, you need to. In my opinion, it’s the only way to stay in tune with the market. And, to those that continue to advocate the message of “core” I say, “What in the world are you thinking?”

As you requested, below please find the 5 hottest gas sippers in your Portland market. As a client you, can get this information on your own in the future by using your vAuto stocking tool, based on any vehicle type, class, make, year or price range. Please let me know if you need to learn how and I’ll be sure to get assistance for you right away.

For what it’s worth, I see the Ford Focus coming up regularly almost everywhere in the country, in the category of top selling gas sippers. The used car market seems to really love this car.

I’ll be out your way in a couple weeks, and I’d love to stop by. Thanks for reading the blog and please feel free to contribute any thoughts that you may have.

For the first 100+ years of the used car business, we’ve always adjusted our prices based on how long we’ve owned the vehicle. But I say its time to stop doing this. OK, maybe I don’t really mean that completely, but listen to what I’m about to say.

What if you had to choose: you could either pay attention to the age of the vehicle in inventory or its day’s supply in the market, but not both? My professional opinion is that you’d be way better off knowing the vehicle’s day’s supply in the market rather than how long you’ve had it in your inventory. Think about it. If you knew from the first day that you had a vehicle in stock that it had a market day’s supply of over 100 days, how long would you be proud of it? Answer this question: how long would you be willing to advertise a new vehicle for over market money if there was 100 day’s supply of identically equipped vehicles in your market? I think the answer is that you probably wouldn’t do it at all. So why are you doing it in your used car operations today? I can show any dealer that they have vehicles with 100+ market day’s supply being advertised for over market money.

The reason that our industry is willing to do this with used vehicles is that they don’t understand what it means to do business in an efficient market. An efficient market is one where buyers and sellers have relatively equal knowledge about their choices and alternatives. Given this definition, was the used car market efficient before the internet? No. We often got buyers to take cars home for more money than they would have if they’d only known where other similar ones could be found around town for less money. There were always such vehicles; it was just that they were not easily found. Today, is the used car market efficient and getting more so every day? Yes. The internet gives shoppers access to the information they need to be aware of all of the available choices and alternatives for every vehicle.

Now, think about this. Any market that’s efficient is governed by the same forces and principles. It doesn’t matter whether it is the oil, grain, cattle or automobile markets. If they’re efficient, they’re governed by the forces of supply, demand and price sensitivity.

In other words, now that the used car business has become an efficient market, dealers are either sailing on the seas with the wind at their back or in their face, on a unit-by-unit basis, depending on the vehicle’s supply and demand. When I say the vehicle’s supply and demand, I mean its current availability (exact year, make, model and specific equipment) divided by its average daily retail sales rate over the last 45 days.

Simply stated, if you have a vehicle whose demand outpaces its supply, shoppers will beat your door down, even if you price the car over the market and call it “ugly.” Conversely, the market will punish you if you take a vehicle whose supply outstrips its demand and price it over the market. The simple time-tested principles of supply and demand never mattered when the market was inefficient and customers didn’t know where other similar vehicles and better deals were to be found. Now that the market is efficient, I say that the vehicle’s day’s supply is actually a much better determiner of how proud your asking price should be rather than the calendar that marks the age of your vehicle in inventory.

I would appreciate your comments on this view (pro or con).

Of course they do. As long as you have a good profit margin on a unit that will sell in your location.

I had a great conversation with Dale last week. This is the meat ‘n’ potatoes of what we discussed.

“What is the days supply in your location?” This is the NEW first question you should ask yourself when deciding what to stock. Not “how cheap can I buy it?” If you make a poor decision and purchase a unit with a high days supply, your retail asking price may quickly turn back to a wholesale or worse.

I live in Georgia. In the winter time, our hardware stores and other retail stores don’t stock snowshoes. We don’t get more than a couple of snow days a year around here. No matter what the price, they probably wouldn’t sell (unless they get so cheap that I buy them all and ship them up north). Either way, it’s not a local retail.

You can’t rely solely on your store’s sales history. The market changes daily and it’s tough to follow (gas prices, economy . . etc). You can’t hope that just because you bought it cheap that it’ll sell. Interest and advertising can quickly take a unit from black to red. By compiling live internet data, Dale’s new Stocking Tool is the only thing I’ve seen that gives us the current information needed to make an intelligent purchase.

vAuto is the only proactive solution I’ve seen. The others just react to the market.

Thank you for giving this market some perspective Dale!

Colin Blackledge - Milton Martin Toyota

If you asked any three top used car managers in the same market to produce a list of the best used vehicles for stock, would these lists look alike? The answer is, probably not. What does this say about the vehicles that are being purchased for our used vehicle inventories? It tells us that our lots are stocked with vehicles that represent the best units based on the opinion and judgment of the acquiring manager. Without a doubt, many used car managers possess excellent skills of judgment. The bottom line, however, is that these critical decisions are just that - judgments and opinions

New technology has been introduced that shows you what, in fact, are the best used vehicles in your market without any judgment, opinion or debate. What makes this new technology different from existing stocking tools is that it incorporates information from the live local market rather than simply relying on a dealership’s own past performance history.

First, however, we must decide what the term “best used cars” means. For one dealership, best may mean vehicles that sell in the highest quantity in the local market. To another, best may mean vehicles that make the highest gross profit. This new technology allows dealers to solve the problem of what “best” means by simply using a slider bar and a scale of 1 to 5. With the setting at 1, the system produces a list of the highest volume used vehicles in the local market based on current sales. When the slider bar is set at 5, the system produces a list of vehicles that will generate the highest gross profit. Furthermore, this information is derived from a true “live market view” which sees every vehicle in every market, every second of every day. And perhaps most importantly, the technology quantifies the current supply and travel rate of every vehicle in real time. It even identifies vehicles that are sold as wholesale versus retail units. With this understanding of current supply and demand, sellers of used vehicles have a perfect view of what’s hot and what’s not.

Let me give you an example. With the slider bar set at 1 (high-volume) and the model year criteria set between 2003 and 2007, the 10 highest volume selling used vehicles in the Chicago market are listed below:

Now, using the same 2003 to 2007 parameters, let’s see the top 10 highest grossing vehicles today in the Chicago market by setting the slider bar to 5:

If you’re wondering why this second list represents the highest grossing vehicles, simply examine the relationship between the number of vehicles available for sale and the number of vehicles sold over the past 45 days. For example, on the first vehicle, the 2003 Hyundai Santa Fe, there are 47 currently available for sale, yet 48 have sold over the last 45 days. When you have a vehicle with high demand and limited supply, the vehicle becomes less sensitive to pricing pressure. Simply stated, when there is a greater demand than supply, you can price a vehicle high and it will still draw a crowd.

As revolutionary as this technology is, it goes even further. It is not enough to simply know that the #1 volume and gross vehicles today in the Chicago market are the 2006-2007 Chevrolet Impala and the 2003 Hyundai Santa Fe respectively. You must also know the specific trim and equipment configurations within each year, make, and model. For example, consider the following possible configurations of the 2006-2007 Chevrolet Impala.

Can you tell which one of these possible configurations is the highest volume selling vehicle within the 2006-2007 Chevrolet Impala category? If not, you’re likely to acquire the wrong vehicle even if you know that you want to purchase 2006-2007 Impala’s. This new technology reveals that in order of volume the best to worst configurations of the 2006-2007 Chevrolet Impala are as follows:

The ability to see the vehicles in proper rank order beyond year, make, model, trim and equipment configuration is the key to making this technology pay off. It is not enough to compare apples to apples when you have the ability to compare granny smith apples to granny smith apples. And, when the technology also shows you which dealerships and private parties have these vehicles currently for sale in your market, managers can zero in on the specific vehicles that meet their profit objectives and purchasing criteria.

This technology is already changing the used car industry. As we know all too well, every dealer has investment capitol tied up in used vehicles that could be re-deployed in better performing ones. Reallocating dollars from lower performing investments to more productive ones unleashes value for those dealers who are using this new technology as well as for the industry at large.

Call out:

What makes this new technology different…is that it incorporates information from the live local market…

OK, I’m going to go out on a limb to challenge a conventional notion. I’m really troubled by the concept of “core inventory”. I’m not saying that each store doesn’t have a certain natural traffic profile based on its brand, location and community, but I am suggesting that the notion of a “core inventory,” while appealing and comforting, is fool’s gold.

The idea of “core inventory” suggests that there is a fixed profile of used vehicle inventory that produces optimal results. In other words, if you stock certain types of vehicles, you’ll be well on your way to success. This notion makes the assumption that the automobile market place is steady and predictable. Without the assumption of steadiness and predictability, one could not legitimately suggest that dealers should stick to a defined core of inventory mix.

However, the truth is that the used car market place, by definition, is anything but steady and, in fact, is extremely unpredictable. There are hundreds of factors that are at play in our environment that influence consumer’s purchase preferences and they are anything but steady and predictable. Fluctuating gas prices, interest rates and weather patterns are just a few causes that constantly befuddle those that attempt to stock inventory today based on what has worked in the past. In fact, the ultimate irony is that dealers who purchase such solutions for the purpose of maintaining “core inventory” are usually doing so because they’re dissatisfied with their own past performance. It seems insane to keep doing the same things and expect different results.

As uncomfortable as it is, we need to let go of our security blanket or in the words of Thomas Friedman, our “olive tree” and accept the fact that in the words of Bob Dylan, “time are a changing.” We must embrace uncertainty and accept the fact that what worked last year, last quarter or last month may not work today. This means that we must keep our finger on the pulse of the market place and take our cues from it in “real time” rather than from history. Our present inventory must always reflect the market at the moment. If gas prices are up, way up, we have to dump gas guzzlers in favor of compacts. If we’re experiencing unusual amounts of snowfall, we must quickly respond with more 4-wheel drives. If silver cars loose their appeal, we must quickly respond by changing our preference of color choices. We simply can no longer afford the convenient comforting thought that what worked in the past will work today or tomorrow. The only things that are constant and predictable are death, taxes and change. Let’s wake up, smell the coffee and realize that the notion of “core” is rotten.