Many of us remember the good old days when the market was simple. You could price just about every unit in your used car inventory with a standard mark-up and earn a decent gross profit. But in recent months, the market has grown more variable. Your customers and your competitors have become even more sophisticated, and economic challenges are contributing to the compression of used car margins.
Growing used car profitability in today’s fractured, dynamic market requires real discipline and continuous learning, as we heard in our Q1 2023 Live Market View. To achieve your goals, you’ll need to keep an eye on the variability across your used car inventory. When you closely monitor all the factors at play and take a variable approach to used car inventory management, you’ll pave the way for success.
Examine Profit Potential When Pricing
Every dealer ends up with a range of retail winners and losers on their lot. And there are more losers than most dealers like to admit — comprising up to 40% of used car inventory in some markets. The key is identifying them at the moment of acquisition. This way, you can price the vehicles with low profit potential a bit lower so they quickly move off your lot, and you can pocket any profit you get. Conversely, you can price
the vehicles with high profit potential at a premium so you make as much gross as possible when they do sell. Recognizing these differences in profit potential is the heart of variable used car inventory management and the key to your dealership’s profitability.
Watch Vehicle Depreciation
In the past, all used cars depreciated at the same rate. But in today’s variable market, the value of each vehicle changes over time in accordance with supply and demand, vehicle age, price point, segment, and market. As a result, the old rule of following the calendar and needing to turn vehicles after a certain number of days doesn’t apply anymore in the world of inventory management for used cars. You’ve got to consider each vehicle’s rate of depreciation when pricing so you know how long you can wait to still sell it for profit.
Look at Your Recon Queue
Once you know which vehicles have low profit potential and will depreciate faster, you should prioritize your recon accordingly. It doesn’t always make sense to use a “first in, first out” approach, because your vehicles with low profit potential might end up waiting far too long to make you any money. Moving cars through your recon process in the right order is a key part of inventory management for used cars — and essential for used car profitability.
See the Value of Variable Management
Many dealers have already started using the variable method of inventory management for used cars through ProfitTime® GPS. The software provides appraising and pricing recommendations based on data science so you can recognize the variability across your inventory and hold on to your used car margins. And it really does work. Just take a look at these dealer success stories:
- James Mason of Steven Toyota in Harrisonburg, Virginia, said, “When I first looked at my inventory through the ProfitTime lens, and seeing how inverted I was, it was a major wake-up call.” With ProfitTime, he saw a 32% increase in volume and a 76% increase in front-end gross.
- Gary Wexler of Honda of Downtown Chicago in Chicago, Illinois, has seen a sizable increase in gross profitability with ProfitTime GPS. When describing what it was like to start using ProfitTime GPS, he said, “The first time you look at a vehicle that you’ve looked at a hundred times before … and it’s telling you to move that number $3,000, you freeze. But then you do it and then it sells? It’s amazing.”
All three dealers used ProfitTime GPS to help them take a new approach to inventory management for used cars. When you really look closely at the variability across your inventory, you can retail the units accordingly and avoid leaving money on the table.
To see how ProfitTime GPS will help you boost your used car margins, request a demo today.