A Familiar Monthly Ritual that Dealers Should Recognize and Repair
Let’s see if the following scenario sounds familiar:
In the final days of a month, a used vehicle manager gets worried about meeting their monthly sales goal. The current month’s sales might be three, five, seven or 10 units behind the goal. The manager’s worried that he/she will miss the target and miss out on the monthly volume bonus.
The manager’s next step is to identify vehicles that, if they cut the price, they know, or at least suspect, will move quickly. Typically, these vehicles are the ones the manager regards as the easiest to dicsount—ones they bought right and priced up to make a good gross profit. Then, the manager lowers the prices and, voila!, the vehicles sell. The used vehicle manager’s feeling good. The department makes the sales target, the manager makes his/her monthly bonus and they ripped a couple trades from customers who were happy to let go of their current vehicle because of the great deal they got on the car they purchased.
A few days later, as the next month gets underway, the manager’s faced with another problem. Leads and traffic are down. The showroom’s a ghost town. The sales team’s complaining that there’s no one to sell. Everyone wonders what happened.…
I’ve observed versions of this story countless times over the years. It’s a ritual that happens almost every month, except July, when many dealers roll out the bunting and balloons for Fourth of July sales, which front-loads the month’s sales volume.
The dynamic’s certainly been familiar to vAuto Performance Managers, too. They often hear the complaints that business is slow from used vehicle managers during start-of-the-month calls and in-person engagements.
Today, thanks to the data science behind ProfitTime GPS and the solution’s ability to identify the investment value of every used vehicle, we now know exactly what’s going on when this monthly ritual occurs. The upshot: Used vehicle managers are cheap-selling their Platinum and Gold vehicles—those ProfitTime GPS deems their best investments—to meet the monthly volume nut. In turn, as a new month starts, leads and traffic are down because the highly desirable cars that attracted buyers (the Platinum and Gold ones) are gone.
Digging deeper, we also now know that the used vehicle managers deployed month-end discounts on Platinum cars because they were unwilling to price their Bronze vehicles—the ones ProfitTime GPS identifies as those with the highest risk and lowest investment values—where they should be. Why? Because pricing the vehicles properly would mean less-than-favorable front-end gross profits when the vehicles sell, an outcome used vehicle managers prefer to avoid, especially at the end of the month.
Thankfully, with the help of ProfitTime GPS and its insights, we now know exactly how to make this monthly ritual go away for good. The fix, however, isn’t necessarily easy because it requires a greater degree of discipline and fortitude on the part of used vehicle managers to make sure their used vehicles are priced in proper alignment with each unit’s investment value from Day 1.
When dealers and used vehicle managers exercise this discipline, the ritual of cheap-selling their best cars at the end of the month and then seeing too-little traffic and sales goes away. Instead, dealers achieve a more consistent pace of sales, thanks to a larger share of Bronze vehicles selling faster and driving volume, with Platinum vehicles retailing when they should, for the retail prices they can command.
I’d encourage dealers to take a closer look at the cars that leave their inventories quickly at the end of a month, paying particular attention to the price discounts that preceded their retail sales. Then, they should ask the following question: Wouldn’t we be better off if we did something different? Perhaps, the answer is to provide a month-end sales objective tied to the reduction of the Silver and Bronze vehicles, to avoid cheap-selling your Platinum and Gold vehicles, which are always your best investments.