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Do You Run Your New Car Department Like an Investor or a Speculator?

What’s the difference between investors and speculators? Investors base their stock-purchasing decisions on available data and facts. They try to eliminate emotion from their buy / sell decisions. Speculators are the opposite: They rely on their feelings or hunches to make buy / sell decisions.

I recently spoke with a large metro domestic dealer who had a $27 million new vehicle investment. I asked him: “If you had $27 million available in liquid assets to invest in stocks, bonds or real estate, would you hire a professional financial advisor?”

“Yes, of course,” he answered.

I then asked him to tell me how his sales managers handle their monthly new vehicle investment decisions. His telling response: “If I’m lucky, our desk managers start working the monthly factory order at 4:45 p.m. The system closes at 5:00.”

The dealer’s answer is unfortunately all too common. Most dealers view their new vehicle inventory as a “cost of doing business” rather than a portfolio of carefully selected stocks. You see this reality across the country. vAuto’s most recent inventory study found that, on average, 35% of a dealer’s new car inventory was aged — the equivalent of dead or underperforming stock. And for some dealers, that percentage is much higher.

Most dealers would agree that if they discovered their financial advisor had a third of their assets tied up in investments that weren’t making any money, they’d probably be looking for a new financial advisor.

Today’s margin-compressed new vehicle market requires an investment-minded strategy. Here are two quick tests to help you determine whether you’re managing your new car inventory as an investor or as a speculator:

Test 1: What’s your average Days in Inventory? If it’s under 100 days, you’re an investor. If it’s over 100 days, you’re a speculator.

Test 2: What percentage of your inventory is made up of aged cars? If it’s less than 20%, you’re an investor. If it’s greater than 20%, you’re a speculator.

About the Author

Brian Finkelmeyer serves as the senior director of new car solutions at vAuto. In this role, he is responsible for all aspects of vAuto’s new car business. Prior to vAuto, Brian spent 18 years with Nissan North America in a variety of sales leadership positions. He is a frequent presenter and author for various automotive trade publications. His topics focus on the importance of increasing new vehicle inventory turn by having the proper inventory mix, strategically pricing based on age and supply, and maximizing the effectiveness of dealers' marketing investment.

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