Stock Only What Sells

I’ve been feeling like the dinosaur that early on felt an ominous chill in the air. I’m sure the vast majority of dinosaurs continued in their routines right up to the bitter end while a few beat the evolutionary odds against them by migrating to warmer climates, taking risks and making sacrifices to stay alive.

As an auto dealer wanting to be among today’s savvy survivors, I comb through all of the available intelligence I can to land clues of what to watch out for and where to go next.

One recent report indicates manufacturers have added quiet incentives for some dealers. That suggests some dealers are leveraging a relationship with their manufacturer to get an edge over their fellow dealers. My conclusion is that this signals the end of the franchise system. Starting to feel that evolutionary chill in the air?

Over that past years many tiered and varied incentives have un-leveled the playing fields on which dealers compete.

Because of platinum floor plan programs, trunk money on certain (but not all) of the same kind of inventory or kick-backs for pushing particular products and lenders, dealers no can longer say to customers that we all start from the same invoice.

Worse, because a tremendous number of units on dealers’ lots were configured to keep manufacturers’ line speeds going (rather than to respond to what customers want) it’s a crapshoot as to whether the inventory being pushed has any shot of being in the customer’s best interest. More likely than ever before, vehicles being sold are bad inventory, hard pushed to rid the dealer of choking carrying costs. “Buyer beware” is truer now than ever I can remember.

Perhaps the path to salvation, or at least survival, is inventory management. Before you toss this column into the bin marked “stories that tell me what I already know,” consider that the inventory management I speak of is not about days’ supply. Neither am I talking about a simplistic “just-say-no” strategy of wholesale buying.

Instead, I’m recommending that inventory responsibility gets a scrutiny that you’d apply to picking a heart surgeon.

The first question that you should ask: “Why stock a new vehicle at all?” “Blasphemy” you say? I am not advocating that you stock no new cars. But there should be a filter through which every new and used car must go if capital preservation and profit maximization is a prime equation. Every unit of your inventory should have a profit reason for being there, including a calculation of the cost and time to achieve it. Period.

I hear knees jerking and dealers saying, “My shop can’t survive without new car work, my salespeople would starve” and the knock out punch: “They’d yank my franchise.”

I have never heard of a single dealer who could justify his inventory on a profit theory of losing his franchise. What’s more, I’ve never heard of a single dealer sustaining himself or herself by propping up sales or service departments on selling bad inventory. It just doesn’t pencil.

Wrong inventory adds floor-planning interest costs, transactional losses and capital drain to the burdens of the dealership. And that’s before you consider sinking customer satisfaction (not the index, real life). You’d be better off paying a “stick around” bonus to your sales and service staff, though I don’t recommend that either.

Nothing shapes the relationship between dealer, manufacturer and customer so dramatically as inventory. If the long dark tunnel of winter with reduced volume, shrinking margins and dwindling cash flow don’t kill those alliances, nailing closed the coffin will be desperate sales initiatives and OEM strategies that are crafted to encourage even more bloated inventories.

While dealers anxiously try to get a grip on this moment, manufacturers are circling their wagons, waiting for the inevitable attrition in their dealer ranks during 2007. Whatever “Projects 2000” they might have hoped would thin those ranks, “economy 2007” will be more effective.

Many dealers won’t make it and some won’t try. For the survivors, my bet is on keeping a tight grip on what makes money and shedding all else. Sadly, many of my fellow dealers will sniff the cold air and expire before ever realizing the full impact of how much already has changed.

Peter Brandow is an auto dealer in Pennsylvania and New Jersey.