Should You Write Your Inventory Down?

(Written week of April 20, 2020, in the middle of coronavirus pandemic.)

I get several calls and/or emails a day asking, “What should I do about my aging inventory now that sales have slowed so badly.”

My first piece of advice is this may not be the time to be thinking about writing your inventory down.

It is certainly a time to think about retailing everything you can at some number.

That said, there may come a point at which you need to write down a selected few units or possibly your entire inventory.

If you’ve been allowing units to exceed 60 days then you may be in big poop and have to bite the big bullet.

The first thing to understand is don’t bother writing your inventory down unless of course, you’re going to commit to some serious changes.

Often when dealers write their used car inventory down, they take a big hit, a deep breath, and say, “OK, done, let’s move forward.”

Many dealers lack the discipline to steer away from what got them there in the first place. Therefore, in six months or so, the owners are staring at the same hot mess they tried to fix and thinking here we go again.

It hurts me to say this, and I know it’s going to cause a few of you to unsubscribe from my newsletters but taking units to the auction and dumping them is just plain dumb.

If you thought enough of that 60-day old unit to bring it into your inventory as a retail piece, you should have been able to find a retail buyer for it at some number. There’s a number that every unit can be retailed at.

Therein lies the problem. You won’t retail it for what it’s actually worth, yet you’re willing to wholesale it for what it’s actually worth.

Of course, your attitude is different right now as a lot of you are being forced to retail units at less than desirable numbers. You would have been better served to have had that sort of mindset before we got to this hot mess of today.

Hey Einstein, which way do you think you have the greatest opportunity to recover from a unit that was probably a bad decision from jump-street? Insanity.

The instances where you have to dump a previously assigned retail piece in the wholesale market should be very few. If you’re in the retail automobile business, then retail your units.

Yes, the grosses on all that aged stuff are going to hurt you for a while. Dumping in the wholesale market will hurt you more. If you have a lick of discipline and stay with it, you will be fine and never, ever have another unit over 60.

My Life-Cycle management process gives you the disciplines and strategies that will keep you from saying, “More write-downs, here we go again.”

If you’re interested I have an easy to use spreadsheet that I’d be happy to send you. It helps you make the adjustments and encourages you to set a new life-cycle on each unit you write-down. Hit the reply button and it will be on its way.

One more thing to keep in mind; 30 days is now the new 60. Be mindful of your 30-day rolling sales numbers vs your current inventory numbers.

This may or may not be the time for write-downs.

If you are going to write down your inventory let me coach you through it. It costs you nothing for me to help you.

That’s all I’m gonna say, Tommy Gibbs