Reduce Used-Car Stocks

August is one of the best sales months of the year. It's the month manufacturers push hard with incentives and advertising.

August, due to incoming next model-year inventory, is when dealers are self-pressured and willing to maximize their advertising dollars to go for maximum customer traffic, volume and potentially strong net profits.

August 2003 has five weekends. It should be a great new-vehicle sales month.

One non-typical item this year is the amount of new-vehicle inventory available compared to recent times. Manufacturer inventories are at a 4-year high.

If your new-vehicle volume increases this month, what will happen to your used-vehicle inventory? Obviously it will increase due to trade-ins and increased traffic. Without a plan of action, potential trouble could lie ahead. Sidestep the used-vehicle pit many dealers fall into at year-end.

First, if you have used-vehicle inventory nearing 60 days in August, make sure it's ready to sell, then take advantage of the increased traffic and sell it this month. Believe me, the used-vehicle market values will decrease in September.

As hard as it may be, dispose of trades as soon as possible if the vehicle doesn't match your inventory profile. Second, look at your past 4-year used-vehicle sales history for the fourth quarter. Will 2003 differ? Make that call based on your traffic, the willingness of your finance sources to buy paper, the tightening of the sub-prime lenders, etc.

It is essential to stock a 45-day supply maximum (30 is better). Don't allow any vehicle to reach 61 days!

As you take your daily trade walk, look at your most recent trades and see if you would prefer a vehicle to one you currently have. If so, consider eliminating the older of the two.

Are you duplicating a current unit? It's probably not a bad thing unless there is a large price difference in the two units. Identical units in stock with significantly different values will make the higher one an age concern.

Sit down with your managers and come up with a game plan to have your used vehicle inventory clean no later than mid-September. Aging is the No.1 problem in the used-vehicle business.

Aging happens due to one of two reasons, improper reconditioning and pricing. If a vehicle needs additional reconditioning to make it sell, do it. If you have too much money in a unit, instruct your managers to not hold out for a $1,500 deal. If you are $1,000 high in a unit, look at your potential wholesale loss versus the benefit of a lower front-end gross with the potential of F&I income.

Getting your used vehicle inventory in shape now puts you in a position to capitalize when the market drops. While your competitors are dumping inventory and having fire sales, you will be bargain shopping. That equates to increased net profit.

I'm not trying to overly simplify a difficult business. But dealers who are disciplined and follow this used-vehicle process year after year see the highest net profit. Meet with your managers forthwith and get started on a plan that will boost net profit at your dealership.

Good selling.

Tony Noland ([email protected]) is the president and CEO of NCM Associates, Inc.