Two changes necessary for stocking vehicles in today’s marketplace

July 27, 2009

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 ([email protected]) or phone (630-926-9016).

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