One of the main topics of conversation among pre-owned vehicle managers these days is the perceived difficulty in obtaining saleable pre-owned vehicle inventory.
Franchise dealers are taking in fewer trades that can be reconditioned and subsequently retailed. Primarily a result of the slow new-vehicle market, this will not change until sales rates improve. Historically, new-vehicle trades have been a primary source of clean, low mileage inventory for the pre-owned lot.
Another source of low-mileage, late-model inventory has been the rental companies. But what is happening there? For the most part, they are all buying fewer new units and keeping what they do purchase in service for longer periods.
With many auto makers pulling back on the fleet business, the number of “risk” units continues to grow within the rental fleets. These are units that have no factory program or guaranteed buy backs. So, the rental company is on the hook for future value.
Unlike the program vehicles that would be run at the factory auctions, these risk units represent financial exposure to the rental companies. Their common way of dealing with this is operating their own retail centers.
The aforementioned are not the only factors, but the net results are higher prices at the auctions and a perception that clean late-model inventory is harder to find.
Prices being what they are at the auction, our pre-owned vehicle managers must know what lot vehicles turn the fastest and exercise control of daily inventory levels.
When buying inventory, the pre-owned vehicle manager needs to be thinking of “achievable margins” and “inventory turns,” not the old “hope-to-get” grosses.
If you know a particular unit turns fast on your lot, and you have to pay up for it, your gross per unit may suffer but your investment will still be working for you. What is most important when determining how much you should pay for a vehicle is what you can sell it for and how fast will it turn.
When it comes to sourcing inventory, there are a few things we can do.
First, let the general public know in all your advertising that you buy vehicles. This is what made one of the big-box pre-owned vehicle retailers famous.
One in particular has gone so far as to open store fronts not for selling pre-owned vehicles, but for purchasing them from the public. Offer to buy any pre-owned vehicle whether or not a consumer buys from you. Set up good processes to dispose of the stuff you won't retail.
Second, work internal customer base. Customize a direct mail or e-mail campaign that targets vehicles within your own owner base that you could use for the retail lot.
Third, you may want to enlist an outside buyer. The key here is you tell them what they can buy for you and tie their compensation to the turn. For example, if a unit they purchase does not turn in 30 days, they do not get paid their fee.
Finally, get comfortable with the available technology, in particular, on-line auctions and networking.
As an owner or general manager, understand the attention and focus required in the current market to obtain the inventory for the pre-owned vehicle lot.
It is not a matter of just showing up at an auction, standing alongside the lane with your price guide book and bidding on a few vehicles. In fact, your manager may have to bid on 90-100 units to ultimately get the right vehicles at reasonable prices.
Today, purchasing requires defined processes and accountability to avoid the common pitfalls of overstocking and aging inventory.
It requires knowing what to buy, why you are buying it and what your achievable margins are. If you know all this, you know everything you need to know. And, yes, it is indeed easier said than done.
The vehicles are out there. But getting the right ones requires planning, focus and discipline.
Tony Albertson is executive conference moderator for NCM Associates. He is at [email protected].
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