Page 10 - GIADA-Jan-2018-Final

SALES

3 Ways to Work

Around and

Through the

Used Vehicle

Donut Hole

By Dale Pollak

I’ve been struck by three trends in the In many ways, these trends force dealers its merchandising/pricing, isn’t “right”
current used vehicle market. to work around and through what might for the market. Both suggest process
be described as a “donut hole” in today’s change opportunities. Dealers who
First, late-model (three years and younger) market. Here are three recommendations apply these lessons learned are more
vehicles account for almost 60 percent I’ve been sharing to help dealers to address likely to achieve the goal of retailing
of retail sales, a fact affirmed in the latest these market conditions: at least 55 percent of your inventory in
Used Car Market Report from Edmunds. less than 30 days.
You can trace this development to the rise • Re-assess your inventory strategy. • Address Cost to Market creep. I
of off-lease supply, which many analysts The best Velocity dealers have been have written before about the rise of
expect to continue, albeit at a slower clip evaluating whether their inventory inventory-level Cost to Market metrics
than recent years. allocations for vehicle types (e.g., climbing close to 90 percent, leaving
compact cars, mid-size SUVs, trucks, only a maximum 10 percent spread for
Second, the prevalence of late-model etc.) and cost segments (e.g., <$5,000, front-end gross profit. Dealers often
inventory is a bit tricky. Lower-mileage, $5,000-$10,000, $10,000-$15,000, know they should strive to maintain
near-new used vehicles are facing etc.) are truly correct and sufficiently an inventory level Cost to Market ratio
competition with heavily incentivized new precise for the current market. In some of 85 percent, but the creep occurs
vehicles. As a result, the near-new vehicles cases, dealers realize they’ve effectively nonetheless. It’s true that the prevalence
aren’t selling nearly as fast as similarly given up on lower-cost vehicles (and of near-new inventory contributes to
aged units with higher miles (e.g., > 50,000 their buyers) as they’ve placed a the Cost to Market increase. But it’s
miles). greater priority on higher-cost, late- also true that these vehicles are the easy
model inventory. Inevitably, as dealers pickings and perhaps reflect a lack of
The Edmunds report affirms this trend, examine their allocations they find desire, discipline or interest in finding
too. It notes, “high levels of lease returns corrective opportunities to right- vehicles with more favorable Cost to
coupled with increasingly stringent mileage size segments they’ve overlooked, Market ratios. I also recommend that
limits will feed an expanding pool of low- overstocked and understocked. dealers revisit their reconditioning
mileage used vehicle inventories that have • Examine your inventory age/days costs, particularly those associated
proven to have a limited buying audience.” to sale by segment. This analysis with outside vendors, to find additional
can affirm and illuminate inventory savings to help reduce Cost to Market
Third, there’s strong demand and interest strategy assessment take-aways. ratios.
for older, higher-mileage vehicles, but they Which vehicle segments are moving
aren’t nearly as plentiful as the later model faster or slower than they used to and The good news is that most forecasts call for
year inventory. The consumer demand why? How do the Market Days Supply a relatively robust used vehicle market in
for these vehicles isn’t surprising. There’s and Price to Market metrics compare the months ahead—a suitable environment
always strong demand for cheap, reliable to those of your fastest sellers? to make the inventory management
transportation. Indeed, Edmunds notes Dealers who conduct this analysis adjustments that help you work more
that these vehicles are turning faster than often find one of two factors (and effectively around and through the donut
most other used vehicle inventory. sometimes both) account for slower- hole in used vehicles. n
movers—either the vehicle itself, or
8 | GIADA Independent Auto Dealer JANUARY 2018