The chatter from a lot of dealers I have spoken with over the last few weeks is the potential glut of new cars coming from the Asian carmakers over the next 60 to 90 days.
When that happens the law of supply and demand will kick in with the supply side taking over. If the predictions are correct then the pressure will be put on with lots of incentives coming from both Asian and Domestic producers; the Asians because they have inventory sitting and want to gain back market share and the Domestics because they want to keep pace.
Such movement in the marketplace will impact the value of used cars; especially the higher priced used cars.
Along with that fact we are also moving quickly toward the fall of the year. It’s smart to evaluate what your real used car inventory needs are for the fall and the holiday season.
History would tell you that there is a large drop in the value of used cars right after Labor Day. With that fact in mind and the potential for a flood of new cars and new car incentives then you have to get your house in order right now. Not tomorrow, not next week, not next month, but right now. Most dealers wait way too long and they wake up in December with a mess on their hands.
You can take control of your situation by focusing on "Life Cycle Management." "Life Cycle Management" requires you to assign each unit an expiration date on the date it comes into stock. Each unit gets a different expiration date depending on "life cycle factors."
Next, make sure you focus really hard on turning all those units under 30 days old just as fast as you can. They will be your best gross opportunities. Then make sure you find a retail buyer on anything over 45 days old by pricing it at a price point that creates immediate activity.
Your ability to maximize your potential between now and the first of the year is going to be determined by the strength of your used car department. Strength will come from having your house in order, which will enable you to acquire inventory as the market moves in your favor with lower prices.
Doesn’t it stand to reason that when the incentives come that your higher priced used cars are going to take the biggest hit? Thus, my process of focusing on driving your average cost down is a "Super Duper" strategy for you. If you drive your average cost down you will sell more used cars with fewer dollars tied up. That means you have some cash sitting on the sidelines to buy more used as the values start to fall. Dealers who are not as savvy as you will start to dump units in the wholesale market as they panic moving into December and January. You will be sitting in the catbird’s seat.
If I was sitting in your seat I would re-read what you just read and then I would sit down and put in writing an inventory strategy that I’m totally committed to. Once you write it down have a meeting with your key players, then review the plan every three days to make sure you are moving in the right direction.
By doing so the only glut you will have to worry about is a glut of cash on hand and a sweet bottom line. That’s all I’m gonna say. Tommy Gibbs