Sometimes it’s simplest processes that are the most effective. Pressing your cost down may be the easiest and fastest way to improve your used car business.
Most new car dealers are not in the used car business. Most are in the NEWSCAR business.
That’s when the average cost per unit in your inventory keeps creeping up and up and before you know it you are too close in price points to your new car inventory. I have an easy experiment for you to do.
Take out your financial statement and go to the used car page. To do this correctly you will need to chart each month for the entire year. On that page you will see a column that has used car sales dollars in it. Simply put, that’s as if you sold one car for $10,000 and one for $20,000, thus you had $30,000 in Sales Dollars.
That in and of itself doesn’t mean much to you. Now, subtract your total gross profit from that sales dollar number for each month. That will give you your cost of sales.
Divide the cost of sales by the number of units sold each month. That will give you the average cost per unit sold for each of the twelve months. I know, I know, pretty simple stuff.
Hang on… When we do this little experiment here is what we generally find: the month in which you had your best retail sales is the month in which your average cost per unit sold was the lowest for the entire year. And, the month in which you had your worst retail sales, your cost per unit sold was the highest for the entire year.
The bottom line is that the more you press your average cost down, the more used you will sell and the better off you will be. You end up getting in the used car business and out of the NEWSCAR business.
You end up selling more units with fewer dollars tied up. Oddly enough, most of your problem cars go away. Your ability to get on a 45 to 60 day aged inventory goes way up.
So, what’s the magic number to get to? There is no magic number. Every dealer’s number will be different. If you are at $14,500 today, your mindset should be “How do I get to $14,000,” then $13,500, then $13,000 and so on.
The more you press your average cost down, the better off
you will be. I find it interesting that when I’m speaking to a group, they think they are hearing me say go out and buy cheaper cars.
No, that’s not what I’m saying. I fully realize how hard it is to buy cheap cars. What I am saying is that it’s not so much about what you buy, but what you don’t buy. If you are buying a high dollar car you have to buy it with great caution. You need to either have it sold, or have data to back up that it’s going to move fast.
I’m often asked two questions:
1. What should my target goal be? There is no target, just try to get it lower than the day before.
2. Can I press my average cost too low. The answer is no.
Pressing your average cost down is a no brainer. That’s all I’m gonna say, Tommy Gibbs