Page 36 - GIADA-May-2018-Final

INDUSTRY ANNOUNCEMENTS

3 Opportunity Costs You Should Consider

Trimming

By Dale Pollak, Chairman and Founder of vAuto, Inc.
As more dealers think of ways to adjust to
today’s margin-compressed environment,
cutting costs becomes a primary topic of
conversation, if not decisions.

It’s a good exercise. It points your attention
to how you’re spending money. It prompts
you to examine whether these investments
deliver the return on investment (ROI)
they should.

But I caution dealers that this review
ought to a bit more all-encompassing and
thorough. It should go beyond the checks
you sign every month. It should look close-
ly at the way you do things, and whether
your people and processes, wittingly or least three times a week. I found it curious week, and cut six-figure sums from their
not, create and contribute to opportunity that the vast majority of dealers did not gross profits, might see better results if
costs that hurt your business. make any new vehicle price changes in the they priced in a more market-efficient, and
mid-month week we examined. proactive manner.
You can Google a lot of definitions for
“opportunity costs.” I like to think of Price adjustment direction: For most deal- Sourcing Vehicles: There’s a dichoto-
them this way: They amount to the ben- ers, the overwhelming majority of pricing my at many dealerships between their
efit, profit or value that you give up when decisions resulted in reductions. On one 2 new and used vehicle departments. In
you choose to make decisions, or complete hand, this take-away isn’t surprising, par- new vehicles, I think you could make the
tasks, in a certain way, one that may be less ticularly given that dealers’ pricing pri- case that dealers and managers would have
efficient than an alternative. marily pertained to used vehicles in the a better mix of market-desirable vehicles if
analysis. But we noticed a notable number they put more insight and time into their
When dealers tell me they’re cutting ex- of dealers who struck more of balance; factory ordering decisions. vAuto’s Brian
penses to help boost dealership profitabil- their price adjustments included increases Finkelmeyer, who helps dealers improve
ity, I’ll suggest they take examine three ar- and decreases (in both new and used vehi- their new vehicle performance, says it’s not
eas of opportunity costs that are often ripe cles). It’s hard to draw a firm conclusion, uncommon for factory orders to occur in a
for reduction: but I suspect the data indicate that dealers hurried, last-minute rush to meet the fac-

may be reflexively reducing prices, and not tory’s deadline.
Pricing Vehicles: vAuto recently took identifying the vehicles, and market condi-
a close look at how dealers price their tions, that merit price increases. “The opportunity cost comes when the
1new and used vehicles. It was a snap- scramble results in ordering copies of cars
shot view that captured a week’s worth of Price adjustment size: If there’s a head- that you’ve had in inventory for the past
price changes (increases and decreases) line from the analysis, it might be “Deal- four months,” he says.
across new and used vehicle inventories. ers Who Price Their Vehicles More Fre-
The analysis isn’t scientific, but it’s tell- quently Make Smaller Adjustments.” The In used vehicles, we’re seeing a shift toward
ing. The following take-aways suggest that data showed a clear pattern among dealers making inventory sourcing less time-in-
dealers could reduce opportunity costs by who reviewed and adjusted vehicle prices tensive. With today’s technology and tools,
reconsidering how they price vehicles. more frequently—on the whole, their price dealers and managers aren’t spending as
adjustments were more incremental, and much time researching and traveling the
Price adjustment frequency: For the most the impact on gross profits less profound. country, for three to four days a week, to
part, the data show dealers are reviewing I couldn’t help but think that dealers who acquire inventory. The shift helps them
and repricing used vehicle inventory at only touched their prices once or twice a address the opportunity costs that come

34 | GIADA Independent Auto Dealer MAY 2018