My best friend in high school lives down in Key West, FL. He actually lives at Big Pine Key, about 20 miles north of Key West. He more or less lives a Jimmy Buffet lifestyle. A very carefree guy. Seldom wears a shirt, drinks beer and fishes most days. He’s single and hangs out with pretty girls. He has a saying, “Don’t panic and never follow the crowd.” A few years ago he repeated this motto often when the hurricanes were blowing through Florida. When everyone was leaving the Keys in a panic, he just sat tight. Hung in there, rode it out. I’m not saying that was the smartest thing to do, but it all worked out for him.
Many dealers right now are in a panic with their used SUV/Pick up truck inventory and they have no idea where the crowd is even going. My first piece of advice is don’t panic and dump them at the auction. You’ve got to retail them, even if you retail them at a loss you will come out a whole lot better. I realize that particular market has gone to crap, but your pile of crap would not be so deep if you would only put some disciplines in place. If you are feeling in a panic right now it’s in large part because you have not been paying attention. Don’t be offended by that statement, but your biggest problem is you’ve been keeping inventory past 60 days. I’ve been all over the country and heard every excuse in the world and none of them are worth the breath it takes to say them.
Many times when I mention 60 days to managers and dealers the first thing that pops in their heads is all the money they are going to lose at the end of the 60 day cycle. No, No, No! If you would just put in some simple processes from day one and then have the discipline to stay with them, you would have very few problems at the end of 60 days.
Back to the current SUV/Pick up truck problem; take a look at your inventory. Look at all the stuff under 60 days. How many problem children do you have in that group? Yes, you do have some, but had you been managing your inventory all along, then that’s all you would have. Look at all the problem children you have over 60. Yikes!
For those of you that have been smart enough to have good disciplined processes in place and already are on a 60 day turn policy, it’s now time to go to 2,3,4,5. That stands for 20 day units, 30 day units and 45 day units. There are certain vehicles that need to be classified from day one as a 2,3,4,5 vehicle. I’m not selling my training in this article, but that is now what we teach. The sense of urgency goes up, volume and gross goes up.
Ok, so you’re sitting there thinking “OK, big mouth, what’s the answer?” I don’t know that there is an answer. These are uncharted waters we are traveling in, but here are a few suggestions:
- This may sound like a contradiction to my discipline of not letting units go over 60 days, but this is the one time to ride it out and to “retail like hell.”
- Make sure that anything under 60 days goes into a true 60 day turn policy. Right now anything that’s 45 days old should be viewed as if it has already turned 60.
- Hopefully you’re using vAuto software to price your vehicles in the most advantageous price position on the Internet. Remember 80% of people looking for a used vehicle shop the Internet. If you have a vehicle that you need to sell, then you have to be in the top five least expensive in your market.
- You cannot price your vehicle based on what you have in them. You have to price them based on market. I know that’s painful, but it’s a fact. One of the reasons CarMax kicks everybody’s butt is because they price based on the market not based on what they have in a car. Sales people and managers are not paid on gross and have no control over the pricing.
- You will have to deal with write downs/losses in whichever way makes you float your boat. You can put it in an inventory adjustment account if that works for you. If your organization buys into the concept of adding $200 to $500 to the cost of every used vehicle that comes into stock then you can try and work your way out of it over the remainder of the year using that money. You may go upside down for awhile or you may end the year upside down. The worse case scenario is you eat it at the end of the year. But the sooner you move these units out, the sooner you can get back into the business of selling cars and trucks. Your sales people will keep walking around units when they can’t make any money selling them.
- Consider forgetting about paying on gross on these problem units. Yes, your salesman’s compensation is going to get out of whack. Since I’m showing you how to lose even more money, make sure you put incentives on for your managers as well. Yes, they helped get you in this trouble so why let them benefit? Because if you don’t you’re going to lose even more money the longer that stuff sits.
- I hate it when dealers put tents up, call it a tent sale, and park cars under the tent. If you’re going to put a tent up, put tables and chairs in the tent and work all deals in the tent. (I have a whole article on this subject. Sent me an email and I will forward it to you.) But, this is the one time I recommend you put some units under a tent. Try this: Put the tent up as close to the road as possible. Put as many of these problem children in the tent that will fit. Put banners up, rent-a-sign, pay somebody to walk in front of the tent all day. The message on banners and all signs is “These vehicles will be marked down $500 a day until sold!” Each day write the date and amount on the windshield. Leave the old amounts on there so they can see where you started. You can start at retail if you want. Since I’m sure you have a large email database, make sure you send an email to all your customers and prospects promoting this program. Put the promotion on your website. Change the price on these units each day on your website just like you’re doing on the lot. Make the promotion part of your advertising plan and consider a direct mail piece. For the sales people, pay them a flat $2000 if they sell one. But…that $2000 goes down by $100 a day. You don’t like my numbers? Ok, pick your own and don’t leave the managers out of the equation.
Until you work your way out of these problem units you are going to be operating at a real disadvantage in the marketplace. Those of you that have been managing your inventory all along are in the driver’s seat. Yes, it’s still difficult right now to trade customers out of their gas guzzlers, but even more so if you have a bunch of them sitting on your lot at 60 plus days.
One final thought I would like to leave you with is that history has proven we make the most money right as we come off of tough times. The reason for that is because when times get tough, we get tough. We get back to basics. As the business turns around we are fundamentally sound and make a bunch of money.
So, get busy. Don’t panic and don’t follow the crowd to the auction.