Engineering success

May 1, 2009

Digging to Find the Gold I had a conference call yesterday with a dealer and his used vehicle managers. It was the last day of a not-so-great month at their Cadillac store. We needed to do a quick assessment of their used vehicle inventory to determine where they might make adjustments to move more vehicles.

It didn’t take long to find the most telling clue. The market day’s supply for the dealer’s inventory-that is the average time it would take to sell his vehicles based on supply and demand-ran 110 days.

We drilled a bit deeper, eyeing vehicle segments. Their inventory allocation in luxury vehicles ran about 38 percent-higher than what the market’s supply and demand would suggest (5 percent) but not unsurprising for a Cadillac store.

We then evaluated the intermediate vehicle segment. They’d allocated 11 percent of their inventory to this bucket, while the market suggested 26 percent might be a better figure.

A-ha! I thought. Let’s drill down even further.

Sure enough, we found the “opportunity hole.” The vAuto system showed that the market would support a 28 percent allocation of intermediate vehicles with retail prices ranging from $15,000 to $20,000.

With a little more research on vAuto, we identified the vehicles with shorter market day’s supplies that would be a better fit for the dealer’s inventory and market. These included Buick Lacrosse, Nissan Maxima, Subaru Legacy, Ford Crown Victoria and Chrysler 300. In each case, the market day’s supply for these vehicles ranged between 20 and 35.

I asked the group if they’d have considered stocking these vehicles and, while some made sense, others were outliers they hadn’t considered. I then asked, given market day’s supply metrics and their desire to move more metal, if these vehicles made sense to stock. “We’d take them all day long,” the dealer said.

The lesson? The store’s market day’s supply directly reflected the store’s Cadillac franchise. Seventy percent of its used vehicle inventory consisted of in-brand vehicles-an allocation that flowed from an ingrained bias toward stocking them that the market simply wouldn’t support.

In wrapping up, I noted that finding the “opportunity hole” requires the kind of deeper digging and investigation into vehicle opportunities we’d conducted on the call and the willingness to stock vehicles that may shift the “brand identity” of your used vehicle operations.

I also noted that this type of “homework” likely fell below the pay grade of the dealer and his top managers. They needed an inventory specialist.

“We know, Dale. We’re hiring one now,” the dealer replied. I can’t wait to share the results the store will start generating in the coming weeks and months.