About two months ago, I wrote about general sales manager James Skop’s experience half-way through an operational challenge he accepted: To align his used vehicle pricing to ProfitTime GPS recommendations at least 85 percent of the time for 90 consecutive days.
I checked in with Skop recently to see how the full 90-day run, which ended June 1, turned out.
“It’s been very successful,” Skop says. “We’ve made very good money. Actually, in May, we had the most profitable month in variable operations in our company’s history and we’ve been around since 1939. The 85 percent target worked really well for us. I’m going to stick at that, but I have to look at it on a car-to-car basis.”
Skop accepted the 90-day alignment challenge in March to see if it would help him improve used vehicle profitability. Previously, he followed ProfiTime GPS pricing recommendations a little more than half the time—most notably on the vehicles the system identifies as Bronze, or the ones with the highest risk and least investment return potential.
“We had a hard time swallowing the fact that we owned a vehicle for too much money,” Skop says. As a result, he’d typically price Bronze vehicles above ProfitTime GPS’ recommendations to give the vehicles a chance to make gross. The approach wasn’t working. Bronze cars averaged about 60 days in inventory and typically lost money when they sold.
During the pricing alignment challenge, Skop focused intently on Bronze vehicles, evaluating each vehicle’s pricing alignment and position daily. The effort paid off and proved that Bronze vehicles, when treated correctly, offer money-making potential.
“We turned around from losing money to making about $1,900 per car on Bronze vehicles,” he says. “When we have Bronze cars now, we make sure we sell them in a timely manner so we can make money. It’s really just accepting the fact that it’s a Bronze vehicle and pricing it as price leader and not a gross profit holder.”
Here are other takeaways Skop shared from his pricing alignment experience:
“Eyes” still matter. Skop says that while his confidence and trust in ProfitTime GPS’ pricing recommendations have grown, it’s still critical to validate that the system’s recommended prices make sense for each vehicle. “We live in an area where there’s rust on vehicles and a vehicle can be Platinum based on how I own it, but it’s not Platinum when you look at it,” he explains. The observation’s consistent with the experience of other dealers. While the data science behind ProfitTime GPS recommendations is sound, there are some vehicles where your eyes (ears and nose, too) are necessary to affirm a vehicle’s retail potential.
Platinum cars perform. Skop has been struck by how fast he’s selling Platinum aligned to ProfitTime GPS pricing recommendations. “We’re asking 103, 104 and 105 percent of the market and they’re still selling fast,” he says. “We looked at how to slow this down. We’re asking top dollar and we’re getting it. But I’m out of alignment on time. That’s where my opportunity lies.”
Stocking-to-discipline is critical. Like a lot of dealers, Skop once believed that you needed more cars in your inventory to drive sales volume. “I said for a long time that there’s no way you can have 30 days’ worth of inventory and continue to do the volume. I was wrong. You can do that. Our inventory hovers around the 70-car mark, which is the number of cars we sell. Because we’re turning our inventory once a month, I don’t have stuff aging out, which typically puts vehicles in your Bronze and Silver buckets.”
Skop’s understanding of the relationship between inventory size and distressed investments holds critical relevance for every dealer in the current market. Right now, the average days supply of used vehicles in dealer inventories is about 45 days—well above the more ideal 30-day mark. When dealers stock more cars than you sell, you’re likely stuck in a rut. Your inventory’s share of Bronze and Silver vehicles grows, you’re effectively forced to fast-sell your best cars (the Platinum and Gold ones in ProfitTime GPS) for too-little gross and your overall profitability suffers.
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