Rethinking the “Right”-ness of Your Used Vehicle Inventory

April 9, 2024

Over the past several weeks, it’s become clear to me that many dealers need to think more deeply about the composition of their used vehicle inventories. By composition, I mean the right number and mix of vehicles.

This realization follows multiple conversations with dealers in recent weeks—all of whom, at roughly the mid-point of last month—realized that their pace of used vehicle sales was lagging. It’s worth noting that all the dealers made their monthly volume targets for March, but the way they achieved this outcome leaves much to be desired.

Generally speaking, the dealers fell into three groups:

They were short on cars. I worked with a Toyota store where, after an analysis of their sales pace and stocking strategy, the inventory was off by 25 cars. The manager knew the score, but he lacked the time and ability to find vehicles and right-size his inventory. To make the volume target, the manager reduced asking prices on in-stock units. Sure enough, VDPs picked up. Traffic increased. Deals got done. But, in reaching the volume target, the manager unquestionably gave up gross.

They had too many cars. This scenario can seem like a head-scratcher—wait, the dealer had too many cars and couldn’t meet their volume objective? Well, the answer is often yes. If you unpack this situation, you’ll inevitably find that, due to carrying too many units, an ever-larger share of a dealer’s inventory will be aged or distressed; cars ProfitTime GPS dealers recognize as “Bronze” vehicles. Inevitably, nearly all of these vehicles aren’t priced to sell. Rather, they’re priced for a customer who might come along and over-pay, thereby helping the used vehicle department avoid a significant loss. In such cases, it’s almost a foregone conclusion that you’ll see managers marking down the best cars (usually the ones with the lowest Market Days Supply and least time in inventory) to reach the volume target. The net effect is the department’s unnecessarily giving up gross.

They have the wrong cars. Often, the cars that may be wrong today weren’t necessarily wrong in the recent past. The issue, as I found with a dealer last week, is often that no one’s proactively comparing the used vehicle department’s sales to the local market. After this analysis, the dealer’s used vehicle team understood that they were effectively over-stocked in larger, higher-priced SUVs and trucks than they should be, and they were cutting prices to move them. They also understood that, with a more consistently market-aligned inventory mix, they’d be more likely to meet their monthly sales target and keep the gross they’ve been giving up.

To reiterate, the common threads in these scenarios is that a dealer’s inventory isn’t as “right”-sized as it should be. That is, they don’t have the right number and mix of vehicles and, when this happens, bad things tend to follow, resulting in lost gross or volume.

I would add that the latest enhancement to ProfitTime GPS, Global Search, helps solve these recurring problems. It starts with establishing/retuning your stocking strategy to know how the number and mix of cars to stock at any given moment. It helps you craft a purchasing strategy to acquire vehicles more consistently with the investment potential you believe they should offer. And, it feeds you the vehicles, across all sourcing channels, that fit your established strategic parameters.

Yes, Global Search requires a bit of up-front time to set up your future success. But, judging from the gross profit that’s effectively leaking out of used vehicle departments every month because the inventory isn’t really “right,” the time seems well-worth its investment.