(Note;this article was written on March 3, 2020, in the middle of the Coronavirus Pandemic)
I’m getting a lot of phone calls and emails right now asking my advice on inventory levels vs. a shrinking market.
More or less the question is: “Our sales are drastically down; my inventory is up so should I dump my inventory in the wholesale market or hold onto it for when the market comes back?”
We all have an opinion. Mine is based on life experiences, common sense, market data and trends I see within our software product.
Number one on that list is common sense. This might be one of those places where using Ben Franklin mythology is the smart thing to do.
I believe the worse option is to hold them for a longer length of time in hopes the market will come back. If you were to do that, you’re betting values will remain the same or go up. Bad bet.
Basic ROI math tells you that’s not going to work out in your favor.
Another super bad option is dumping units in the wholesale market. That’s not to say that you should never do that. It may be wise to dump a few selected units that you know you need to cash out on, but never should it be a large part of your inventory. I’m just being real.
Keep the following in mind; at some point, the factory and/or government is going to do something to spur new car sales.
When that happens, more trades will show up at the front door and values will decline.
You can also bet the rental car companies are going to start to unload inventories which will help create an additional drag on used car values. The law of supply and demand is always in play.
Let’s assume that sales in your market are off by 50%.
Somebody will sell the 50% that’s out buying. Price will become that much more of a factor for those folks that are willing and able to buy right now.
Managing prices on a day-by-day, hour-by-hour basis has never been more critical than right now. Your goal should be to retail a car at some number and therefore get more than your fair share of the pie/market.
Your focus has to be on today’s “buying market.” You may even have to retail some units at a loss. I’m not going to insult your intelligence by listing all the reasons a retail sale, even a loser, is in your best interest.
You know it is, but it’s a hard pill to swallow when you are looking at negative gross.
Yes, it’s going to be painful, but not half as painful if you play the “let’s hold them and deal with it later strategy.”
If you want to play a paper shell game, then adjust any losing unit once it’s sold. Eat the loss a little each month until the end of the year.
If your salespeople and managers are being paid on gross, you’re going to need to be creative and protect them to some degree until this mess passes.
In the normal course of doing business, your inventory levels should not be any greater than what you have sold over the last 30 days. That’s quickly getting out of line, but if you’ve been focusing on it, you’re not in as bad a shape as some dealers.
A good tip of the day for you right now would be to make sure everyone is keeping an eye on the rolling 30 days sales numbers.
The Scoreboard page in my UpYourGross software is a tremendous tool to help keep you on track and out of trouble.
You need every tool you can muster up to get out in front of this hot mess we’re all in.
If you’re interested, you can have it for April for $100. Spend $100 to make you and your team better during the most difficult time ever in the car business.
It seems like a no-brainer. It’s also a no-brainer to stay disciplined with inventory turn.
That’s all I’m gonna say, Tommy Gibbs