Last year was certainly an historic time. There had never been so much upheaval in such a short period in the retail automotive industry. Some dealers were forced to literally start all over again and reinvent the type of dealership they have.
One strategy chosen by many dealers was to open as a used vehicle super store.
However, the first thing to realize was that traditional marketing support mechanisms associated with a new vehicle franchise (e.g. tier one advertising, sales incentive programs, the value of being part of an established brand) vanished along with the brand sign. As such, a significant change in viewpoint and approach is now required along with the basic operational requirements set out below.
If the commitment has been made, then the next step is to review the “three P’s” of a successful used vehicle operation: People, Processes and Product
If you want to be successful in this you need the right people and the right number of people. One of the biggest mistakes made is not having the right number of people to sell your vehicles.
For example, if you want to retail 40 used vehicles per month and the average salesperson sells seven, then the math says six salespeople are required on staff. One problem is that we often forget about days off and that we lose work hours to sick days or training days.
To ensure adequate floor coverage daily, factor in holidays, training and sick leave. You may find seven or eight salespeople will be needed to hit the 40-unit monthly sales target.
What processes will you put in place to make sure you have the right amount and mix of inventory and that the inventory is clean and turns in a timely fashion?
The first process needed is an inventory aging policy. Of all the things that could negatively impact your operation, none impacts as much as aged inventory. This problem affects all areas of your operation.
For example, grosses are low due to either having too much money in the vehicle or “blowing out” the vehicle because it has been in stock too long. Reconditioning costs go sky high because the vehicle has been sitting in stock for an extended period and needs to be re-cleaned, re-inspected, etc.
Variable expenses get out of hand due to excessive bonuses paid on aged units. Semi-fixed expense soars as floor plan and advertising rise due to aged inventory.
To avoid this, put an aging process in place and stick to it. Top dealers in recommend a 45 to 60-day aging policy along with a 48 to 72-hour turn in the shop for reconditioning.
Again, the key to this is to establish what this process will be and stick to it. The advantages of doing this are a better R.O.I. on your inventory, lower expenses and higher grosses.
The most important “P” was saved for last. Where do we get this inventory and what do we stock? If your plan is to go to an auction in person or online and just start buying inventory, remember, the only reason you buy a vehicle at an auction is because you were the last person with your hand up. This means if you are at the auction, you just paid more than anyone else.
Do your homework. Research auction results and try match up vehicles that have sold with similar vehicles you need. Review online sites such as AutoTrader.com. Attend live auctions, but don’t buy right away. Instead, go to get an idea of what is selling. Do the same with online auctions.
Talk with other dealers about what’s going on in the market. Just make sure when you start to purchase inventory – from auctions, wholesalers or other dealers – you have a good idea what a vehicle is worth.
Remember also that when buying any vehicle you have to assume you will spend additional money on reconditioning. Not taking this into account can cause you to be seriously over priced in your inventory.
Establish the correct mix of inventory. We have discussed how to prepare to make the right decisions in what we pay for our product, but how do you establish what the right mix of inventory is for your store?
- Analyze the market you are in. Do a survey of competitive lots. Find out what is selling on their lots, and more importantly, what is not selling.
- Review your own logs from previous months, what sold quickly on a consistent basis? What makes/models were hampered with sluggish results?
- Be open to what used to be “off makes”. Remember, you are now a used vehicle operation. There are no “off makes” anymore.
- Develop a “lost sales report” based on all you could have made had the vehicle been in stock. Keeping a record of units customers asked for but you could not provide helps track what buyers are looking for.
If you have made the mental commitment to become a full time used vehicle operator, and the operational commitment to the three “P’s”, then you should be able to get off to a flying start in 2010.
Clark Crawford is a moderator and consultant for Performance Incorporated.
For more information on Performance Groups or in-dealership consulting, call 800-327-4332 or visit www.performance20groups.com.