Paving the Way for Centralized Dealer Group Decision-Making

As our industry has consolidated and dealer groups grow in number and scale, many face a critical question: To what degree can, and should, we centralize inventory management decisions rather than let each store go its own way?

The question’s especially timely given the declining profitability in new and used vehicles that has occurred over the past two years, and the desire among dealer group owners to achieve the level of efficiency, scale and return on investment they expected when they acquired additional stores, often for top dollar.

The centralization question can also be a difficult one for dealer groups to answer. Some prefer to let store-level leaders, many who have a financial stake in the store’s performance, call the shots. For them, centralizing almost any aspect of used or new vehicle inventory management is tricky at best. For others, the question is difficult because they don’t necessarily have all the store-level performance data readily at hand to know precisely when and where some level of centralization might make the most sense. 

That’s why the vAuto team and I have been investing significant resources and time to innovate our inventory management solutions and provide dealer group leaders greater visibility into day-to-day store-level performance data to know, at any store at any given time, if there’s a performance issue that requires greater attention/coaching or a higher level of centralized control.

While I believe that centralized inventory management decision-making offers the best way for dealer groups to achieve optimal efficiency and ROI across their rooftops, a fully centralized approach often requires a change in incentives, reporting and tools to deliver the additional ROI dealer groups seek.

But as the vAuto team and I have been helping dealer groups get a clearer, more easily accessible view of store-level performance, it’s unquestionably true that almost every group has an opportunity for performance and profitability improvement, whether it relates to acquiring, appraising or pricing vehicles.

For example, in recent months we’ve seen dealer groups get more concerned, and in some cases more aggressive, about minimizing, if not eliminating, aged inventory across their rooftops. The emphasis on aged inventory typically follows a realization that the front-end gross profit production at one or more rooftops suffers because of too many vehicles over 45 or 60 days in inventory.

Now, we all know that there are many reasons a vehicle may age out as a retail unit. Maybe you paid too much to acquire it. Maybe someone priced it too high for too long. Maybe something isn’t quite right about the car itself, say its color or condition.

But when we’ve worked with groups to address age problems, it’s almost universally true that no one asked a critical question when they acquired the vehicle—is the store that appraised and acquired the vehicle truly the best rooftop to retail it?

Often, the question goes unasked because it’s not a standard practice or no one’s aware that, with the advance of AI-driven predictive data science and technology, you can now know on Day 1 the store the offers the best opportunity to retail the vehicle and achieve the group’s gross profit and ROI objectives.

As we’ve worked with dealer groups to more proactively centralize and answer the “who gets the car?” question, we’ve seen the level of aged and distressed inventory across the group, and the drag on profitability these vehicles represent for the group and individual rooftops, diminish.

Yes, the effort to centralize this decision sometimes gets push back from store-level managers. But over time, as the store-level managers understand a decision to move a vehicle is based on data, and not someone’s random choice or preference, and their store’s performance suffers less because of fewer aged units, they trust the process.

The key here is ensuring group-level leaders have ready access to the rooftop-level performance data and insights they need to guide their businesses to the outcomes they expect. With that, dealer group owners can begin to assess how much they should centralize inventory management decision-making or at least begin to hold store-level managers more accountable for making decisions in line with the group’s performance objectives.