Vehicle inventories have been high, and the natural dealer reaction is to restrict wholesale buying until stock levels come down.
This situation becomes a double-edged sword for dealers. We are heading into what are traditionally the best sales months of the year. Yet, based on current inventory levels, good business practices would suggest we proceed cautiously as it relates to buying additional inventory.
Interest rates remain at their lowest level in recent history, making the cost of inventory less of an issue. But there are additional factors to consider relating to dealership profitability. Reduced shipments of new inventory mean fewer interest credits, co-op ad dollars and pre-delivery credits.
Excess inventory not only equals the loss of the credits listed above but also, at minimum, the potential for lot damage, increased dealer trades and a poor selection of more popular models.
In the not-too-distant past, most dealers had less-than-desired levels of new vehicles, especially for popular models. So, when the opportunity to obtain additional vehicles came, they stepped up orders, often without a solid plan to sell this additional inventory.
Is there enough of a pent-up demand to increase our sales rate, aided by increased incentives, to the point that it will allow us to quickly bring our inventory into line while, at the same time, allowing us to continue to accept our manufacturer’s suggested allocation?
We are all aware, but few will admit it, that it’s dangerous to decline wholesale allocations presented by the manufacturer. It is at times like that when the dealer-manufacturer “partnership” seems strained.
In my retail life, I was always amazed at the long memories of manufacturer representatives when it came to us not taking suggested allocations. But we took actions that seemingly helped minimize the impact.
First, my new-vehicle managers would prepare a report each Monday morning listing the days’ supply of each model in inventory plus the inventory that had been built and was in transit.
We would then prepare a list of vehicles where there were inventory gaps. We shared these two reports with our manufacturer reps so they would not be surprised. I’m convinced this process helped us.
Sure, there were times we took inventory that exceeded our desired plan, but we knew the impact in advance and didn’t look up one day to find we were out of line in a particular vehicle line.
In addition, we would ask reps if there were specific vehicles they needed help with, and we would try to take a few of these to help out.
Dealer principals should personally get involved in the new-vehicle inventory purchase process and essentially buy only the inventory needed to meet business plan. Your bottom line will reflect this best practice.
Tony Noland of Tony Noland & Associates is a veteran dealership consultant. He can be reached at tonynolandandassociates.com.