Throughout this year I have tried to present ideas and best practices to help you improve your profitability. I would like to present you with a reminder and a brief overview of selected subjects presented this year. This reminder covers what I consider to be essential in maximizing your profitability and protecting yourself in the event the market should slow.
Watch that aging inventory In January, I presented the results of our all-dealer client used-vehicle study. Based on the results of this study, NCM strongly recommends that clients adopt a policy of not having any retail inventory that exceeds 60 days of age. This requires a discipline and is hard to put into effect initially, but once the policy is in place, your gross profits will increase, your reconditioning cost will decrease and you will turn your dollars more quickly.
You have to stay on top of your aging inventory if you adopt this policy. A vehicle has to be identified as a potential 60-day unit when it has been in inventory 30 days without activity and action taken. Wholesale units must be disposed of, on average, within 15 days of obtaining the vehicle to permit maximum wholesale grosses.
A strict aging policy February also dealt with used vehicles. In the previously mentioned NCM Used-Vehicle Study we found that making a wholesale gross profit is highly dependent on a strict aging policy. We have also determined that our losses are greater on purchase vehicles than on vehicles we trade for.
Based on my personal experience and many 20 Group-meeting discussions, our greatest loss potential is with program vehicles. I strongly recommend that you immediately initiate a program where a program vehicle cannot remain in inventory for more that 30 days. If you adopt this policy, as well as not buy too many at one time, not loan them and not use them as demonstrators, your potential for loss will be greatly reduced.
Get house in order In March, I encouraged you to get your house in order. If you have taken the necessary steps to ensure that your expenses are in line with your gross profit generation, then you are most likely in a good position.
If, on the other hand, your expenses as a percentage of gross profit have increased, then you have some work to do. One of the most critical actions you can take now, while times are good, is to take a close look at each individual expense and determine, first, the necessity of the expense, and second, actions that can be taken to reduce the expense.
Knowing when to order In June, I asked you to take a look at your new-vehicle inventory situation and to get it in line.
The first thing you must do is adopt a discipline whereby you look at your new-vehicle inventory by model line on a weekly basis. Do this without failure. Calculate your total availability in terms of day's supply, by model line which includes ground stock, vehicles in transit and scheduled orders that will arrive prior to your next allocation.
If your total unit day's supply for that model exceeds 60 days, you don't order anymore, period, until your day's supply formula indicates a need for more inventory.
One other very important item, you must communicate with your sales and inventory managers. You must let them know that this action is not a whim, but a firm policy that must have your personal approval prior to any deviations being made.
Profit positioning In October, I reminded you to position yourself for profit. I asked that you review a few items including your receivables, your nonessential personnel and your nonessential expenses.
Successful forecasting In November, I suggested a forecasting process that many or most of our most successful clients utilize involving their managers and getting total management commitment and buy-in.
Hopefully the few reminders presented here will encourage or allow you to take action and reach closer to your potential.
In closing out this year, I want to wish each of you a very safe, happy and love filled holiday season and thank you for your continuing support of NCM, myself and this publication.