Question from John Creran of Ramsey Nissan
Have you noticed any trends over the last 60 days regarding declining turn ratios? End of August we were at 13 times, end of September just under 16 times, end of October dropped to 13 times and today we are at 9 times.
Floor traffic and lead traffic has been significantly less in November for us, which is in line with November 2008 traffic. We came off a record Pre-Owned month in October of 97 retail units and another 36+ wholesale.
The last 10 days I am seeing a rise in NO SALES in the lanes and, of course, lower prices. I believe dealers are “panicking” and dropping prices on the street to get people in the doors. Our grosses are a few hundred less this month on Pre-Owned. I held out as long as I felt was right to keep from giving the house away just to get people in the doors.
Any advice or trends you and your company are noticing now would be a great help. Again, I hope all is well. How is your new book moving along? -John
Good to hear from you. The new book will be officially released and available at Amazon.com on January 11, 2010. I’m very excited about it, it’s choc full of practical but surprising insights.
Regarding the state of the market, it’s clear to me that there was a bubble that broke in the used car marketplace some time in late September, early October. Retail traffic slowed down precipitously, and most dealers were caught with inventory levels tailored to higher expectations. To make matters a bit worse, most of the inventory on the ground had been acquired for wholesale values at their seasonal peak.
What happened next is a tale of two cities. In one camp were the velocity dealers that said “this stuff has to go”. They lowered their prices, accepted lower average gross profits, and they’re now back in the market replenishing their inventories at lower wholesale prices.
In the other camp are most traditional dealers that said “hell no, I’m not going to accept lower profits, I’m simply going to hold out”. These dealers have maintained their average gross, but have seen lower sales volume and lower turn.
The difference in these two approaches is when the pain is recognized. The velocity dealers have kept their turn up albeit at lower averages but are refilling their lots with vehicles that they can sell at more competitive prices. The second group has deferred the pain, but cannot avoid being out sold in the coming months by the velocity dealers that offer the same cars to the market at much lower retail prices. In other words, take the medicine now or later, in one form or another. -Dale