Four Used Vehicle Fundamentals to Help Stay Strong as Fall Unfolds - AutoSuccessOnline

Four Used Vehicle Fundamentals to Help Stay Strong as Fall Unfolds

There appears to be good news and bad news on the horizon in used vehicles.

The good news first: According to analysts, the healthy pace of used vehicle sales, particularly in near-new segments with good-credit buyers, that many dealers have enjoyed this year may continue this fall. If true, the used vehicle market may defy the slowdown that typically occurs during autumn and affirm what some analysts call the market’s “ongoing resilience.”

Now, the bad news: Analysts expect new vehicle sales volume to taper off in the waning months of the year — a dynamic that will put pressure on factories to step up incentives to drive new vehicle sales, creating a more challenging used vehicle retail environment.

Read our entire issue – Click here


In light of this potential future market volatility, I recommend dealers revisit four used vehicle inventory management fundamentals:

  1. Mind the Market Days Supply. The best dealers mind this metric in two ways — on a per-car basis as they make appraising, acquisition and pricing decisions, and on a total inventory basis as they gauge the overall desirability of their units in stock. In either case, dealers strive to find vehicles, and maintain their inventories, with a low Market Days Supply, which signals fewer competing units and a greater likelihood of a fast retail sale. Among top-performing used vehicle retailers, the overall inventory Market Days Supply average runs just shy of 75 days. I’ve noticed what I’d call “upward creep” in the Market Days Supply inventory averages at dealers across the country, a potential sign of an imbalance in supply and demand.
  2. Manage your Cost to Market. I typically advise dealers to shoot for an average Cost-to-Market ratio of 84 percent for their used vehicles — a benchmark that provides a 16 percent spread between their cost to own/recondition a vehicle and its current retail asking price. Lately, I’ve seen dealer inventories with Cost-to-Market averages hovering closer to 90 percent. Dealers attribute the rise to increased competition and costs to acquire and recondition inventory. I’ll caution that, while the higher Cost-to-Market averages aren’t necessarily cause for alarm, they should not become the “new normal.” Today’s compressed retail margins don’t need any help from appraisers or buyers who fail to recognize that you make your margin, and your money, in used cars when you acquire them.
  3. Price your cars to market conditions: Most dealers understand that it’s important to price their used vehicles to the market — a best practice that’s gained credence as dealers recognize today’s buyers are more price-smart than ever. The real question is when do you get serious about pricing cars to the market? From Day One? Day Seven? Day 30? Top-performing dealers apply Price-to-Market strategies that balance a vehicle’s age, current market demand and their own desire for front-end gross profit and sales velocity from the get-go. “For us, Price to Market is like a throttle,” a dealer recently told me. “You can definitely price some cars above the market, what I call the ‘idle’ position. But these days, you’ve got to put most cars out there at half-throttle or more, right out the gate, if you want them sell quickly.”
  4. Minimize your average days in inventory: Not that long ago, you could ask a dealer about their average inventory age in used vehicles and get a blank stare for an answer. Today, more dealers are aware of the “time-is-money” nature of used vehicle retailing. They understand that front-end gross profits on vehicles retailed after 30 days average as much as 60 percent less than those retailed in less than 30 days. As a result, the best dealers strive to maintain at least 55 percent of their used inventories under 30 days of age, a benchmark that by definition reduces your number of aged units and encourages you to retail a greater share of vehicles when they’re fresh and full of gross. For many dealers, delays in reconditioning often prove the most problematic as they work to minimize their average days in inventory.

Of course, some dealers don’t need to revisit these fundamentals, because they serve as the principles that guide astute, market-focused used vehicle inventory management decisions every day. For these dealers, the prospect of a more challenging seasonal sales environment isn’t a surprise. Rather, they’ll see the signs of changing market early, and make adjustments to ensure a strong finish for the year.

Read our entire issue – Click here
VIEW ALL ARTICLES

You May Also Like

Dealership GMs Need Fewer Worries; Start Here: Recon and Appraisal Integrity

How do you manage margin compression? With a focus on predictable outcomes.

Dealership GMs Need Fewer Worries; Start Here: Recon and Appraisal Integrity

Margin compression is in the news again. Heard at NADA: GMs are concerned about margin compression and their ability to earn a living.

We have been speaking about the persistence of margin compression throughout the pandemic years — and urged dealers in February 2022 to heed the signs and sharpen pre-COVID selling, inventory management and customer relationship skills.

Just WIN All the Time, It’s Fun!

To operate at your highest level of contribution requires that you deliberately tune in to what is important in the here and now.

Just WIN All the Time, It’s Fun!
Embracing AI: How Automotive Dealerships Can Supercharge their Operations and Reconnect with Humanity

Having a human-centric approach, augmented by AI, is the cornerstone of a dealership that not only excels in sales but also in creating lasting connections with its community.

Embracing AI: How Automotive Dealerships Can Supercharge their Operations and Reconnect with Humanity
Everyone Has Something to Teach Us

Don’t let pride keep you from learning and expanding your skill sets. Create a “learning zone” where knowledge is freely shared.

Everyone Has Something to Teach Us
Reducing Worries for Dealership GMs

No GM wants to be pulled away when something comes off the rails or slammed by unexpected events they thought were being managed by our products.

Reducing Worries for Dealership GMs

Other Posts

Why Dealers Should Care About the Coming Auto Insurance Recovery

The anticipated upswing of the auto insurance market in 2024 — and lower insurance rates that come along with it — should have dealers celebrating.

Why Dealers Should Care About the Coming Auto Insurance Recovery - Polly
Navigating Shrinking Margins: Acquisition Lessons from the Stock Market for Dealers

Initiatives are being developed to ensure that dealers can access the necessary vehicle data without facing prohibitive costs, aiming to make vehicle data more affordable and efficient.

Navigating Shrinking Margins: Acquisition Lessons from the Stock Market for Dealers
Unleashing the Power of Customer Data with CRM, AI and Analytics

From the moment a potential buyer expresses interest, to post-purchase engagement, every interaction can be optimized for a seamless and personalized experience.

Unleashing the Power of Customer Data with CRM, AI and Analytics
Document Management Solutions Keep Your Dealership FTC Compliant

Staying in compliance can be an overwhelming and costly endeavor, but failing to comply can result in fines reaching upwards of $50,000.

Document Management Solutions Keep Your Dealership FTC Compliant