How is Market Day’s Supply Derived?

I received the following question from Lee Culver.  My response follows:

Dale,

I enjoy reading your blog as you bring up many interesting points.

I have a question about ‘market days supply’ because it’s an incredibly important number.  I understand the concept of dealership’s days supply.  It’s a simple calculation based on the retail sales history for a specific period of time compared to the current inventory and that information can be found in the DMS.

But what numbers do you use to estimate the market days supply?  I assume internet listings are a fair representation of ‘current inventory’, but what about sales history?  Is that information based on actual vehicle registration reports such as Polk or AutoCount, or some other method?

Thanks in advance for your response. – Lee

Lee,

Thanks for your note, and interest in the Velocity Method of Management.  If it’s all right with you, I’d like to post your question and the following response on the blog.

Market Day’s Supply is calculated by dividing current market quantity of the vehicle at it’s year, make, model, trim level with its exact equipment configuration by the average daily retail sales rate over the past 45 days.  In other words, if there’s 10 identically equipped vehicles for sale in the market and over the past 45 days they’ve been selling at 1 a day retail, then you divide 10 by 1 to derive a 10 market day’s supply of that vehicle.

Deriving the current retail sales rate over the past 45 days by registrations would be unacceptable for two reasons.  First, the data would be old as it takes more than 45 days for the state to publish this information.  Second, descriptions of vehicles from state registrations are limited to that information which can be decoded from a VIN.  As you’re probably aware on many vehicles, this data is nothing more than year, make, model.  The difference that trim and equipment configurations have on the supply and demand on most vehicles is profound.

The vAuto technology is the only one in the industry that has the ability to quantify supply and retail demand at a granular year, make, model, trim and equipment level.  We’re able to do this because we track, time and date stamp the coming and going of every vehicle on the internet along with each respective price change.  Vehicles that are wholesaled very quickly reappear elsewhere in the country for sale and we can therefore remove them from the retail sales rate calculation.

Thanks – Dale