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Dealer Insights - Jan/Feb 2011 - Stocking Inventory: Trends and Tips

Identifying vehicle-buying trends and knowing how to react to them is part of your challenge as an auto dealership owner or manager. Here are some inventory trends and stocking tips to consider as you steer your store into 2011.

Trend: Used cars remain hot. All signs indicate that the used car market will hold strong in the months ahead. Total 2010 used car sales are estimated at about $37 million, according to the chief economist for Manheim Consulting, a division of the Manheim auto auction company. While that’s less than the prerecession level of $40 million, it shines when compared to 2010 new-car sales. The U.S. used-to-new sales ratio was 2.5:1 over the last decade, Manheim reported, but a hefty 3.2:1 in 2010. And the proportions are expected to remain over 3-to-1 this year.

Manheim also reported for 2010 higher profits among dealerships’ used car operations, higher prices and more frequent inventory turns. Additionally, consumers are more willing to purchase higher-mileage used cars than in recent years — 80,000 might be the new 50,000. This may open the door for the F&I department to increase sales of extended service plans.

Tips: Find out what models are selling in your market now and their purchase prices. Set used car pricing right from the onset, with an eye to quick turnover. This will limit frozen capital and keep inventory aging in line. Put in place a policy on aged used car inventory — anything older than 60 days should be considered for price reduction or wholesale. This will keep stock fresh. Consider investing in software that tracks up-to-date pricing information in your market — or do your own research — but price offerings based on real-market activity.

Trend: The supply of off-lease vehicles is shrinking. Off-lease vehicles as a used-car source has dropped off — or dried up altogether. Domestic automakers, in particular, have cut back on leasing or eliminated the activity in the last few years.

Tips: To keep used car stock at a desirable level, investigate auction alternatives. But check prices and availability regularly, because of dips and bumps in supply and demand. Auction prices, for instance, were high in many markets in the third quarter of 2010 because fewer dealerships were taking used cars to auction.

Trend: Factories are shipping lean. Having learned hard lessons about overstocking in 2009, most automakers have dramatically reduced the inventory they’re sending to dealerships. But some dealers are reporting new-car shipping trends as too lean, at least for the models that their customers want.

A whopping 73% of the 244 dealers responding to an August 2010 Automotive News survey, for example, said they had too few new vehicles in stock. And 77% reported they thought they had lost sales as a result. Dealerships working on a low gross margin are especially hurt in these situations.

Tips: Do whatever you can to make sure the factory is sending you what customers will buy. Still, it’s generally better to be one unit short than one unit over. Don’t accept all shipments blindly. Strengthen your relationship with your factory representative, make sure your rep understands your market and keep him or her up-to-date.

Trend: Many dealerships are taking an “order by demand” approach. It’s not like the “old days,” when every customer could walk into your store and drive home with the exact model they wanted. Many dealers now report that customers expect to drive their existing vehicle for a few, or several, more weeks until their order arrives. But there are still customers out there who don’t want to wait.

Tips: Consider stepping up exchanges with other dealers within, say, 50 miles. Offering customers newer-model loaners is another option.

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