A Dealer Sees How History Can Blind Current Market Conditions

March 5, 2013


“Dale, I’m starting to see my average days in inventory creep up. I had a strong January and decent February, so I’m a little surprised. What are you hearing from other dealers that might be causing this problem?”

I asked the Chevrolet dealer in Michigan who posed this question to be more specific about the vehicle segments where he’s noticed his average inventory age (which runs about 25 days overall) head north.

“Let’s see. It looks like we’re having the most trouble moving SUVs and trucks.”

The answer didn’t surprise me, but I asked a second question to verify a hunch: What’s your average price to market for the older vehicles in those segments?

“I think we’re where we should be for units at or above the 30-day mark—roughly 92 to 94 percent price to market.”

I gave the dealer credit for aligning his retail asking prices to reflect inventory age. Most times, I explained, dealers with aging vehicles really have a pricing problem—that is, they don’t pay enough attention to their asking prices as vehicles age, resulting in cars priced as if they were fresh, in-demand units.

Then, I asked a question to root out what I suspected as the chief cause for the dealer’s segment-specific age issues: What market factors do you think might be making your customers less interested in your SUVs and trucks?

“To be honest, I’m not really sure. We typically do well with SUVs and trucks. I suppose gas prices might have something to do with it.”

I was glad the dealer at least understood the linkage between rising gas prices and diminished demand for less fuel efficient vehicles. We’ve seen a nearly 50-cent-per-gallon increase in gas prices since the beginning of the year—which means it’s no wonder this dealer’s stock of Silverados and Tahoes had lost some appeal among potential buyers.

But I was troubled by the way this dealer’s emphasis on past sales history had effectively blinded him to current market conditions.

I offered a quick tutorial to show how the dealership’s online merchandising data (namely, SRP/VDP tallies) offered a way to sniff out changing consumer demand for specific vehicles. I noted how this is two-way data—it can help guide acquisition decisions and help retail out of cars that appear destined to get dusty on the lot. (No surprise, our examination of the dealer’s SRP and VDP conversions for the larger, aging vehicles had dropped by as much as 1.5 percent in the past few weeks.)

The take-away lesson for all dealers: As I’ve noted in recent posts, this spring’s selling season offers a volatile mix of used vehicle supply/demand dynamics. In this environment, dealers who rely on past history will often fail to contemplate current market conditions, much less calibrate their used vehicle management decisions to meet them.