A failed lesson from the old school of used car management
Below is a posting that I found on another social media site. It represents a sad and all too real old-school view of the used car business. Please read the comments by Mike Warwick and my response:
vAuto is a useful tool but dealerships that rely on it exclusively are INSANE. We found in our dealer group that our highest gross occurs on day 42. Using the Velocity approach, we would have blown most vehicles out and left tons of money on the table. Your DMS should provide you with your highest grossing day. Take that number and compare it to what vAuto suggests for pricing. It’s pretty eye opening. With prices through the roof at the auctions, leaving money on the table in favor of a quicker turn doesn’t seem like a great idea at this point. The price of the replacement is likely to be higher than the vehicle you just took a short gross on.
Mike, you’ve got it all wrong. I hope that your gross on day 42 is really huge because the velocity dealer with whom you compete has typically sold 2 to 2.5 units in the first 42 days while you’re waiting on your first big one. You see, the way you make money today in the used car business is to go from money to metal, money to metal, and money to metal as fast as you can. Not only does this maximize total gross and net profit return, but it also reduces your exposure to the risk of volatility from the ever changing used car market. In other words, the currency of your inventory is critical to reducing risk. You can’t afford to be caught long on yesterday’s cars.
Regarding your suggestion that the replacement vehicles will come at a higher cost, so what, get over it. It sounds to me that you’re more of a speculator than a retailer. You see, retailers aren’t interested in playing the market but rather focused on putting money to work to create front end gross, back end gross and long-term customer service and referral relationships. So long as you can keep the dollars turning and generating returns, you’re doing what you’ve been hired to do.
Oh, one more thing Michael, what will you do with those cars that don’t sell in 42 days for their maximum gross? I’m sure they don’t all sell on day 42, so do you start pricing down after 42 days? If you do, and eventually sell the cars on day 50 or 60 at a lower gross profit, you don’t look so smart then, do you?
Mike, your velocity competitors applaud you and your group’s approach to the used car business. From their perspective, you should keep doing exactly what you described.