Page 16 - GIADA-Dec 2017-Final

INDUSTRY INSIGHT

A New Way To Think About “Water” In

Your Inventory

By Dale Pollak

Dealers have long understood that having their inventory water. For some, it doesn’t basis, dealers may still take baths as they
water in their inventory is a bad thing. really matter at all. If the vehicle’s a fairly wholesale vehicles, but the water’s not as
fresh piece, dealers will hold out hope that a deep or as cold as it could have been.
The conventional view holds that you retail sale will make any water a moot point.
determine the level of water in your Others reckon with water when they’ve Second, the traditional view of water doesn’t
inventory by comparing your costs to own given up on the vehicle as a retail unit, and really measure the most significant challenge
the vehicle against the amount you could take their lumps as they wholesale the car. dealers face in today’s used vehicle market—
get if you wholesaled it right away. the continuing grind-down of front-end
But I’ve begun to believe that this traditional gross profits.
Hence, if you own a used vehicle for view of inventory water isn’t as useful for
$10,500, and current valuations suggest dealers as it has been in the past. In our current margin-compressed
you’d only get $9,500 for the car on the environment, even a vehicle that isn’t weighed
wholesale market, you’ve got $1,000 in For starters, the wholesale market, despite down by water often doesn’t produce a
water for the unit. The same math holds for a headwind of high supplies of late- sufficient level of return on the dealer’s
a dealer’s entire inventory. model vehicles, has remained relatively investment.
strong. Both demand and valuations are
Dealers pay varying degrees of attention to surprisingly resilient. On a day to day This condition shows up every day in my work

14 | GIADA Independent Auto Dealer DECEMBER 2017