Are you prepared for what’s about to happen?

December 10, 2008

The next three months will be the most treacherous that we have ever faced due to the unprecedented number of used vehicles at auction and marshalling yards awaiting wholesale disposition. As we approach the year end, the corporations that own these vehicles will write-down their values to reflect current levels. Once this is completed, the corporations will be solely focused on liquidating these assets.

I believe this will result in the most extreme period of used vehicle devaluation that we’ve ever encountered. There should be little doubt that this will severely impact the value of the used vehicles on dealership lots.

In order to avoid the situation in which a large percentage of your units are owned for $3,000 – $6,000 too much, I urge you to reduce your current inventory now. I would not advise this reduction to be done at the wholesale level, but rather at retail. More specifically, I would encourage you to employ what I call “Who-tail” strategy. Temporarily, but immediately, put aside the expectation of making an acceptable gross profit in favor of liquidity.

I realize that this recommendation is radical, but I believe that it is critical. I also understand that it will negatively impact the financial performance of the dealership as well as individual compensation programs. Nevertheless, these immediate consequences are far less severe than what is likely to happen during the next 90 days if you hang on to the vehicles that you currently own.

If you take this extreme action right now, you will find yourself in the enviable position of being a buyer in the greatest buying moment of our history, rather than facing insurmountable wholesale losses. I will be spending the majority of my time between now and the end of the year working with dealers on implementing this strategy and helping them to navigate this turbulent period. Please feel free to contact me so that we can work together or discuss these recommendations.