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DEALER INSIGHT

Temptation Abounds. Will You Bite?

By Dale Pollak, Chairman and Founder of vAuto, Inc.

‘Tis the season for temptation in used The bottom line is that that their attempts to speculate panned
vehicles. the best dealers today are 2. Your holding costs. In many cases,
out worse than they remember.
It’s that time when some dealers stock up used vehicle retailers, not the decision to stock up on inventory
on used vehicle inventory in advance of the speculators. They don’t comes 45 to 60 days in advance of
annual rite of spring-fed retail sales. consider hope as a viable anticipated retail demand. This means
if you acquire a vehicle for $15,000,
I got a note today, in fact, from a dealer who’s strategy for success. you’re automatically saddling it with
contemplating bulking up his inventory holding costs (assuming a $30/day
even earlier this year, given recent softening units on fire sale to get out of them. We just average) that range from $1,350 to
of wholesale prices. projected wrong.” $1,800. This cost burden, which I
recognize many dealers and used
I had to ask the question: “How did that Such experiences have led me to conclude vehicle managers don’t regard as “real
work out for you last time?” that dealers simply aren’t as good at money,” makes it extremely difficult
gambling or speculating on future retail in today’s highly competitive market
The answer wasn’t surprising. Last year, the sales as they think. In fact, I’d assert that to realize a sufficient return on
dealer began acquiring more inventory late these attempts to play the market only pay investment when the vehicles finally
January to ensure he had enough vehicles off about 50 percent of the time. retail.
to meet anticipated demand in early March. 3. Your crystal ball. In all my years, I still
But, “by the end of February, the wholesale Unfortunately, dealers often don’t haven’t met anyone, in the car business
market had increased and we were selling remember the 50 percent of the times their or elsewhere, who can consistently and
aged units for less than it cost us to acquire speculative efforts don’t work, especially accurately predict the future, especially
inventory,” he says. when they’re facing a fresh temptation to in an environment as competitive
repeat the cycle. and volatile as today’s used vehicle
The dealer’s experience is not unlike those market. We’ve all seen sure-fire winner
I’ve gleaned in conversations from other On some level, the inability to resist this vehicles turn out to be losers, which is
dealers. To an individual, they all admit temptation is understandable. Dealers a lesson worth remembering when the
that previous attempts to speculate on an and used vehicle managers are typically temptation to speculate strikes.
expected uptick in retail sales often don’t individuals who like to gamble and take
pan out the way they thought they would. risks—witness the shoulder-to-shoulder The bottom line is that the best dealers today
blackjack tables after hours at any NADA are used vehicle retailers, not speculators.
Take this experience from a Texas dealer, convention in Las Vegas. They don’t consider hope as a viable
who bulked up his inventory in anticipation strategy for success. Rather, they focus their
of selling more used vehicles to replace But I would suggest that dealers should efforts on retailing everything they can in
those lost in Hurricane Harvey. strive to resist the temptation to speculate the current market. This strategy puts them
for the following reasons: ahead of competitors who can’t resist the
Indeed, the dealer sold more retail units, 1. Your past success. Like the two dealers temptation to speculate and too often get
but he also suffered a hangover effect—a mentioned above, it’s a useful, albeit bogged down with the bad results. n
preponderance of 70-day and older sobering, exercise to honestly evaluate
vehicles he was forced to list at “fire sale” whether bulking up their inventory or In addition to being a best-selling author
prices at the end of the year to get out of holding on to vehicles really paid off in on Used Car Sales in his book Velocity,
them. The upshot: The losses on the aged the past. How many of those vehicles Dale Pollak is the chairman and founder of
units effectively wiped out any gains the sold quickly when the appointed vAuto, Inc., a company that provides retail
dealership realized from succumbing to the time for their retail sale arrived? automotive dealerships with a better way to
temptation to speculate. How many aged past the point where appraise, manage and price their pre-owned
they delivered a sufficient return on vehicle inventory. In addition to serving as
“We thought the buying frenzy was going investment? What was the average vAuto’s spokesperson, Dale is responsible for
to last longer than it did,” the dealer says. front-end gross for all of these vehicles strategic planning and development.
“The projections of 750,000 to 1 million (including any retail or wholesale
totaled cars wasn’t. Right now, we have 30 losses)? In my experience, dealers find

34 | GIADA Independent Auto Dealer MARCH 2018