By: John Whitnell
President, Whitnell Analytics
May, 29th 2015
Strong inventory management is key to Used Truck Department profitability. Inventory velocity needs to be high, yet it is necessary to keep an adequate supply on-hand, all while attaining a reasonable gross profit. Management of used inventory boils down to four steps: 1) Appraisal; Inspection/Reconditioning; 3) Marketing; and 4) Planned Disposal.
Appraisal isn’t about looking up the book value on a unit. Any experienced appraiser makes an automatic gut-level estimate before the truck is ever acquired. However, the proper appraisal process is much more than the gut feel. This includes understanding, by make/model/year, the true market value (not based on yellow book, etc.) of that unit. Part of that calculation is how many similar trucks are available and how much in-flow and out-flow is happening in the market place, both wholesale and retail.
Proper appraisal takes into account supply and demand for each individual truck. The preliminary assessment should consider whether the truck can be sold wholesale or retail, the level of profit you can expect, who potential customers will be, estimated reconditioning and how long that truck will likely sit before selling. Of course, the longer the truck sits, the higher the cost and time requirements for reconditioning.
Inspection/Reconditioning is vital for increased velocity and gross profitability. Statistically, used trucks with proper upfront reconditioning sell quicker and for more gross profit. It is vital that acquired units (purchase, trade, off-lease, etc.) be inspected and put through reconditioning immediately. It should take no longer than 10 days to have a used retail item ready to sell (other than body repairs.)
Establish a method for ensuring that all trade-in trucks meet trade terms. Get upstream in the transaction and make sure your New Truck Sales Representative clearly communicates your terms and conditions expectations in the deal.
Marketing for used inventory should be started prior to the truck arriving at the dealership and fully in place by completion of reconditioning. Trucks that need to be moved quickly should be displayed in the best real estate, not just on the lot, but also in the best spots on the website, newspaper ads and all other marketing venues.
Salespeople should be required to have a certain number of customer contacts for acquired and reconditioned trucks each week. Activity for each truck – demos, quotes, credit applications – should be tracked and reported on a weekly basis. Monitoring these reports will keep the Sales Department abreast of any objections that need to be corrected.
Establish a baseline for activity on your used truck inventory. The baseline is the minimum average number of quotes, website hits and demos per week necessary to sell a vehicle in its class. This needs to be reported, measured and analyzed on a weekly basis and decisions made about the continuing status of the truck, regardless of the days it has been in inventory. Unless you can identify why a truck falls below the expected level, you must consider starting the disposal process.
Planned disposal is necessary for units that, despite best efforts, sit on the lot beyond 90 days (unless there is a viable reason for the truck not to be disposed). However, as noted earlier, if the truck is not receiving adequate activity throughout the timeline, disposal may need to take place earlier. After that period your retail people will have moved on, so you need a plan that doesn’t depend on them. Waiting for a buyer to stumble on to your lot and claim the stranded truck tucked away at the back is always a losing strategy.
A Used Inventory Management program improves income at every stage. An engaged appraisal entered in a written record improves the assessment skills of your staff. Not only does the record serve as a history, it becomes a measurement for making decisions at each subsequent stage. Inspection and reconditioning become priorities, so that the item gets to the lot faster, prepped to trade standards. By managing the early stages, your marketing tools are ready when the unit is driven onto the lot.
Your dealership should develop a clearly-defined policy of what constitutes overage used truck inventory. That policy should be rigorously adhered to and applied. To effectively manage used truck inventory, you need to initiate wholesale sales actions and assess auction options that will optimize the proceeds associated with each inventory unit in your used truck inventory.
Your written monitoring system, though, has accumulated a list of reasons not to hang onto this unit. You’ve already recognized that the appraisal was too optimistic. Inspection and reconditioning has raised your cost, but not your income. It’s had sufficient marketing attention. There’s no reason to keep resources tied up in this one. Whether you ship it to auction, trade it or use a virtual auction site to “test” the bottom of the market, it’s time to move on. However, with weekly monitoring, you’ll have fewer units reaching this point.