Strategies for survival
On July 10th, I wrote an article and blog posting (dalepollak.com) called “45 to Thrive.” In this piece, I predicted (as we all could have) that we would soon be facing unprecedented tough times. More importantly, I also prescribed a strategy to be implemented to ensure survival. Today the conditions that I wrote about are truly upon us with the very survival of many dealers in question. It is time to revisit the survival strategies that I outlined a few months ago, this time with a sense of urgency.
First, take note that liquidity is essential for survival. The primary source of liquid cash for a dealer continues to be his used car inventory. Aged inventory can not be easily liquidated without recognizing a severe financial loss, something that we want and need to avoid. Therefore, strategy #1 is to keep your used inventory fresh. By fresh, I don’t mean the “less than 60 days” rule that has worked in the past. Today, I mean that you need to keep your inventory no more than 45 days. In these turbulent days of wide swings in fuel prices, financial market upheaval, and new vehicle incentive fluctuations, any vehicle older than 45 days is subject to severe devaluation. That’s just how it is.
Strategy # 2 is to focus first on total gross and second on average gross. That’s right, as difficult as it is to accept, your total gross is more important than your average gross. If your car is stuck on the tracks with a high speed locomotive bearing down, you get the hell out of the car. That’s a pretty good analogy for what’s going on in the market today. The supply of vehicles is increasing and the current demand is very low- so what are you going to do? Again the answer is get out, get out get out.
A client of mine that owns a Ford store in a highly depressed market sold 20 new vehicles and 179 used last month. He told me that his average gross was horrible but his dealership made $80,000 net profit last month, so “it must be OK” he told me.
Having no vehicles over 45 days and focusing on total gross are two simple, yet critical strategies for surviving. Thriving in this market requires much more, but these two strategies are a really good places to start.