There are some dealerships and some dealership groups that penalize the used car department for every unit over 60 days old.
A standard number they take is 10% of the value of each unit over 60 days. They subtract it from the month’s gross profit, impacting the gross profit the managers will be paid on.
A fairly common way of using that 10% is to write those units down by that amount, reducing the inventory amount and thereby creating a new and lower cost for that unit.
Part of the theory is that you’ll make some of it back when you sell the unit. When you finally sell the unit after a total of 90 days of ownership you might show a little profit, but you really didn’t make any money. All you’ve really done is played a joke on yourself, but it does make you feel better.
Never forget it is not about having to dump units at 60. It’s about finding a retail buyer before you ever get to 60. (Hello, Tommy Gibbs’ Life Cycle Management Process.)
Let’s pretend you have 10 units over 60 with an average cost of $25,000 each ($250,000.) That’s not a stretch because the more expensive units are the ones that tend to age, if for no other reason than there are fewer butts that can fit in those seats.
10 units at the 10% equals $25,000 worth of write down/loss for the month. Doesn’t really fix much of anything. Much like our politicians you’re just kicking the can down the road and allowing an undisciplined, lack of processes environment to continue to exist.
You might want to take some of that money you’re blowing and invest in coaching your team to a higher level of competence and continued performance. That’s how you grow a team. That’s how you grow an organization.
A penalized team loses games. A well-disciplined team wins games. That’s all I’m gonna say, Tommy Gibbs