Days Over for Stocking Used-Car Lot By Gut Instinct

The days of acquiring used-car inventory by gut instinct “are 100% over,” contends Sam Slaughter, dealer principal at Sellers Auto Group, located in Farmington Hills, MI, and representing Buick, GMC and Subaru.

But he recalls encountering old-school skepticism when his dealerships began using inventory-management software. Crunching market-demand data, such systems help dealerships determine which pre-owned vehicles to stock and how to price them for fast inventory turns.

Slaughter says doubters told him, “I don’t care what the machine says, I go by what my gut says.”

That attitude “will kill you,” Slaughter says, citing the cost of stocking dogs that linger unsold on the lot and lose value daily.

“Managing a used-car inventory is a science today,” Slaughter says during an Autoline Spotlight video presented by WardsAuto. The program focuses on various aspects of wholesale dealer lending. Those include inventory floorplanning, the acquisition of additional dealerships and facility improvements.

Other program participants include Tom Bennert, Ally’s commercial auto chief risk officer, Autoline’s John McElroy and WardsAuto’s Steve Finlay. Click here to watch the panel discussion that also touches on retail financing and whether a subprime bubble is about to burst. (Spoiler alert: Not likely, despite doomsayers in some quarters.)

Despite four increases since 2015, the Federal Reserve interest rate of 4.25% is historically low and compares with 5% in the recession year of 2009, Bennert says. “When interest rates climb up, it typically means the economy is doing well.”

Slaughter adds: “We’ve enjoyed a wonderful run of low interest rates. You can’t make a decision on inventory based solely on interest costs. You also have to make it on what you think you are going to sell.”

At what point does he get nervous about interest rates?

“I’ll say this: We’re more careful these days with inventory. But I don’t see a massive pullback in inventory” unless interest rates skyrocket.

What is the balance between keeping customers happy by offering a large selection of inventory on the dealer lot and keeping inventory properly managed?

“If I knew that balance, I’d be a happier man,” Slaughter says. Unlike other countries where customers order vehicles and wait up to weeks, American car buyers know what they want and “want it now,” he says.

Much of Ally’s wholesale lending to dealers centers on floorplanning, but the non-floorplan part of the lender’s portfolio has more than doubled since 2009, Bennert says. Dealership acquisitions account for a lot of that financing.

 “We tell dealers all the time, ‘If you are interested in buying another dealership, we’d love to help you,’” Bennert says.

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