NOW'S THE TIME TO ADJUST INVENTORIES

The news is that 2001's second-half sales look stronger than originally expected due to high incentives and growing volume for import brands.

Question: Other than 60 days and obviously the climate, what's the difference between Aug. 31 and Oct. 31? Maybe, the new and used vehicle sales market is different?

Each year, and believe me, I know this from personal experience, August is a fairly robust new-vehicle sales volume month. We are determined to move our current-year inventory in order to accommodate the new model year vehicles, which are beginning to arrive. We have to “step up” our used-vehicle appraisals in order to meet or beat our competitors and then, our problems begin.

What's the difference in the wholesale value of most used vehicles between the dates mentioned above? A lot more than 60 days, as a matter of fact, maybe it's even a model year.

As you know, this is a time in our industry when a used-vehicle actually has a model year birthday. So, my point is this: The vehicles we appraised “out of the book” in late August, we are now out 60 days later, in late October, trying to wholesale in a totally different market.

If the potential loss is too great, we take the vehicles back to the retail arena and try to retail ourselves out of this impasse. We put big incentives on these vehicles and try to get a deal at any gross, usually lower, profit level.

While this is happening, the boss is telling us to get our used-vehicle dollar inventory level down, our new vehicle volume is going to pot and-new vehicle inventory levels are beginning to rise along with our floorplan cost. We cut off our new vehicle orders, and start to lose floorplan credits, etc. It's a vicious cycle. Does any of this sound familiar? It does to me, because like most, I have been there and fortunately learned through my mistakes. So then, what can we do?

First, take a look at your historical September and October used-vehicle sales (by car and truck) and, the cost of sales for those individual months.

For example, if your historical cost of sales (inventory sold) during September-October is $500,000 per month, do you want to go into September with a $1,000,000 inventory? Instead, take advantage of the early September period — or window — to start bringing your inventories into line by wholesaling the vehicles that don't fit your inventory profile.

This action will allow you to aggressively attack the market. Not only will you be able to trade for vehicles when the opportunity presents itself, you will turn your dollars more quickly, minimize potential wholesale loses and most likely, have higher grosses per used vehicle retailed. This action should prove to be a competitive advantage because you have prepared yourself for the season, and in many cases, your competition may have not. There is one additional benefit to this action. In November and December when the market traditionally reaches its lowest price-point, you will be poised for action relative to purchasing inventory.

2001 will probably become known in automotive history as the rebate and incentive year. The news is that 2001's second-half sales look stronger than originally expected due to high incentives and growing volume for import brands.

Watch your average inventory value and proceed with caution. If you are strongly involved in the late model and program market, those vehicle values are potentially volatile based on the incentives in effect at any given time.

Is it possible to totally protect yourself? Probably not, but then that goes along with being in the car business. What you can do though is plan. By taking the time to research your fourth quarter history and making any volume and economic adjustments you deem necessary for this year, you should be in a position to take advantage of any “opportunity” the marketplace deals you.

Good selling!

Tony Noland is director of international operations for NCM Associates. He has 30 years of automotive retail experience.

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