3 Reasons “History” Fails As Foundation For Used Vehicle Inventory Strategy

February 4, 2013

From time to time, I’m asked to explain why I don’t believe that a dealer’s history of used vehicle sales is a reliable guide to determine the cars to acquire and sell in the current market.

I’ll often begin my explanation with an important caveat: I do not dismiss the value of history to provide clues into the present market. There are some vehicles in some markets that can rightly be regarded as “old reliables”—cars that, time and again, prove to be profitable, retail winners for a dealer.

Similarly, some dealers have carved effective market niches for select types of vehicles/segments. In such instances, past sales history can help these dealers continue to feed a market niche.

Beyond these scenarios, however, I believe that dealers who rely on history to guide their choices for acquiring and retailing used vehicles are unnecessarily limiting their retailing and profitability potential.

Here are three reasons why history is a problematic guide for a dealer’s used vehicle retailing strategy:

1. History reflects biases. Most dealers develop their sense of the best cars for their dealership through brand-biased eyes. That is, they’ve historically skewed their inventories to reflect their franchised brand. Therefore, the sales histories that flow from this strategy rarely represent the full raft of retailing opportunities in a given market. In some cases, dealers may have tested makes/models beyond their franchise brand. But such experiments are often random, reflecting the best guesses and biases of a used vehicle manager rather than current market data.

2. History limits opportunity. When dealers rely on history to guide their used vehicle strategy, they often end up with a “go with what we know” acquisition mindset. In these dealerships, used vehicle managers shy away from cars that don’t fit the historical template and, as a result, they miss new opportunities. At best, this history-to-habit dynamic merely limits a dealer’s potential for growth in used vehicles; at worst, it spawns repeat mistakes that manifest through persistent wholesale losses.

3. History may not be relevant. Every dealer would agree that today’s used vehicle market is far more volatile than it has ever been—and many signs suggest this is the “new norm.” In this environment, the past increasingly bears little resemblance to the present, particularly as consumer demand, supply constraints and competitive factors continually change. This ever-evolving sea makes a dealer’s sales history less relevant for effectively competing in today’s market. This is why I believe real-time market data, which constantly measures shifting market supply and demand dynamics, offers a better guide for acquiring and retailing used vehicles.

As I noted above, I’m not saying that dealers should completely disregard history in their used vehicle strategies. History matters—but only to the point where it meshes with the current market.