Is turn really king in today’s market?

The following question was posted on DrivingSales.com by Bryant Gibby in Utah along with my response.  We’d like to hear your thoughts on this topic.

The very first lesson I was taught as a young, naïve used car manager was turn is king. I was told that I needed to view each used vehicle as an individual stack of cash or investment and the quicker I could turn that stack of cash, the more profitable my department would be. The logic made complete sense at the time because I, like everyone else, understood that a car is a depreciating asset and you don’t want to sit on your investment too long and let it depreciate too much.  Also, the shop makes more money, we make more pack, we make more doc fees, and we make more back-end money.  So all I needed to do was to stay on top of my pricing and so long as my cars were reconditioned and advertised properly, I would succeed. Sounds easy right?

Any car guy knows that the best time to sell a used car and maximize profit is to sell it in the first 30 days. We also know that you are doing a good if you can sell 60% of your used inventory in the first 30 days. What’s the best strategy with the remaining 40% of your inventory then? Should you go to a 45 day turn and sell the remaining 40% in the next 15 days? Is a 60 day turn better? 90 days? Should I even care about how quick they turn knowing that I will eventually sell them if I’m ok with taking a huge loss?

I work at a bottom line pricing dealership. We have been running on a fairly strict 90 day turn policy the last couple of years and we are trying to transition to a 60 day turn policy. As we have started to make the transition, I have noticed that I do a lot more discounts than I used to and we are taking skinnier deals as a result.  A shorter turn policy would make complete sense in a normal depreciating market, but does it make senses in today’s market?  Everyone that knows anything about used cars understands how volatile the market has been and how crazy thing have gotten at the auctions over the last couple of years.

The concept of turning your inventory quickly makes complete sense to me if I can go replace that same care for cheaper than my current cost at the auction. We all know that that isn’t the case most of the times. So, back to my original question. Do you really want to follow a 60 or 90 day turn policy and “drop your pants” so fast knowing you are in a very unpredictable market? Or, is it better to keep your pants on and try to put more emphasis on gross and less on turn?  It’s a tough call for sure! I would love to get some insight and hear what you guys think. What is working for you?   – Bryant

Bryant,

The answer is an emphatic yes, keep the inventory turning.  The answer is also yes, go for the gross, but go for the total gross, not the average. 

If you can’t replace the car for the same money, don’t worry about it, there are plenty of hot cars that you can buy right.  There are only so many days in the month, months in the year and your job as a sales manager is to maximize the return on the given amount of capital you have to work with.  Trust me when I tell you that you have very little control over what the car is going to sell for.  What it’s going to sell for is a function of the marketplace as seen through the eyes of the shopper on the internet. You’ll fool nobody with higher prices.  If you want to concentrate on holding gross, don’t do it by raising your prices, but rather limiting the amount of negotiation that you do once your customer arrives at your store.  You should measure and manage the amount of discount from asking price to selling price on every deal and per sales person.  It is here and only here that you can and should try and manage the average. 

Also, don’t fool yourself into believing that cars really appreciate.  Although some cars may in fact rise a bit from week to week, no one is so good as to know which ones, how much, and for how long.  The responsibility of a sales manager is to sell, not to collect or to speculate.  Yes, this means that once in a while you might miss an opportunity to catch somebody sleeping, but when it’s all said and done trying to fool the market on a consistent basis is a losing strategy.  The only reliable outcome is to go from money to metal, from money to metal as fast and as many times as you can.  Apply your desire to make more money in other worthy areas, such as limiting the amount of negotiation and finding ways to get your vehicles through the reconditioning process and to the physical and virtual front lines faster.  These challenges represent fruitful endeavors worthy of your concern and management.