If you are like many dealers, you wrote down some used-vehicle inventory at the end of the year. As a result, you may have instituted a mandatory turn policy that, when a unit hits a certain age, it must be disposed of.
A turn policy is a step in the right direction, but not without addressing the behavior that created the aging and wholesale losses in the first place?
To illustrate my point, let's assume you approach your used-vehicle manager and tell him or her that you are going to institute a mandatory 60-day turn policy.
Any used vehicle that hits 60 days in stock must be somehow disposed of or you will write it down 100% and charge it back to the used-vehicle department's gross profit.
This policy will certainly get the manager's attention, but what kind of behavior does it create? Does it force them to stock the right vehicle in the first place? Does it guarantee the vehicle is reconditioned properly before it goes on the lot?
How often will the used-vehicle manager go out and “touch” that vehicle to see if it is merchandised properly and priced on the current market? When do we make the decision to wholesale it and reinvest our money in something that may turn faster?
The 60-day turn policy is a good thing but if the disciplines of daily management are not followed, all you have guaranteed is that on day 58 your used vehicle manager will go into panic mode to get the unit out of the inventory.
Chances are this is the first time they have even looked at the unit. They may dispose of the unit by “trap trading” with another dealer. Now you have someone else's aged unit on your lot and probably own it for more than it is worth.
The net result is wrong vehicles on your lot, decreased sales, low gross and slow traffic. But it's all less than 60 days old.
Put a hard turn policy in place, but also install a daily process that will manage the behaviors. The following is what this process should look like.
Have your business office run a used-vehicle inventory report every morning sorted by year, make, model, miles, cost and days in stock. Give a copy of the report to the used-vehicle manager who highlights every unit that has been in stock 16 days, 32 days and 48 days, and has the keys to those units pulled.
The next step is to gather your sales people and check out those specific aged units. Have the staffers start the engine, check the gauges, A/C and heater and look for damage or additional reconditioning that may need to be done.
Is the pricing on the unit competitive? What is the customer feedback on the unit? How many times has the vehicle been test driven by a potential buyer?
The used vehicle manager ultimately asks one question: “Why has this vehicle not sold?” Based on the response from the sales team, there are only three actions you can take:
Re-price the unit and keep it.
Complete additional reconditioning as needed and keep it.
There are only three reasons why inventory ages:
Reconditioning issues. Is the unit ready for sale and reconditioned to the level of expectation of our customer?
Valuation issues. Is the unit priced on the current market or did we price it using the old cost-plus method for determining the retail value?
Planning issues. Is it the right vehicle for our market, time of the year and demographic?
Install a daily process for evaluating specific inventory as it ages and oversee the correct behaviors to implement a healthy turn policy.
Tony Albertson is executive conference moderator for NCM Associates. He is at [email protected].
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