A three-store dealer in the Southwest recently got worried about a drop in the Provision ProfitTime Investment Score for his used vehicle inventory.
He and his team generally liked to see their inventories achieve an Investment Score of 7 (the lowest-rung of ProfitTime’s Gold ranking). Last month, the stores achieved a combined average Investment Score around 6.
The off-target performance rang an alarm bell.
The dealer dug a little deeper.
He noticed two things:
First, the number of Bronze and Silver vehicles in the inventories seemed to be increasing, to 40 percent or more across the stores.
Second, the appraisal Look to Book ratios at the stores were hovering around 35 percent—far behind the group’s 50 percent target. (The appraisal Cost to Market percentages ran lower than the group’s 80 percent target.)
That’s when the dealer called me for a conversation. He wanted my take on the situation.
“I’d say you’re not making peace with the truth when you’re appraising vehicles. You’re losing too many trades, which represent your best opportunities to acquire Gold and Platinum vehicles. And if you’re not getting those vehicles, you’ll end up with higher shares of Bronze and Silver vehicles, and a lower overall inventory Investment Score.
“But let me be absolutely clear—having higher shares of Bronze and Silver vehicles isn’t necessarily a bad thing. If your Look to Book ratios didn’t suggest an opportunity, a higher number of Bronze and Silver vehicles might simply be the way it is in your market.”
The dealer pushed back. “How can the number of Bronze and Silver vehicles we have in stock not make a difference? The more of these vehicles we have the less we make, since we have to price them lower from the get-go, right?”
On one hand, you’re correct, I told the dealer. It’s true that Bronze and Silver vehicles will not generate the front-end gross profit you might get from Gold and Platinum vehicles.
Then, I shared the other hand: “But here’s the truth. You’re hoping for front-end gross profits for Bronze and Silver vehicles that simply don’t exist. By definition, the Bronze and Silver vehicles will never offer the front-end gross potential that you get with Gold and Platinum cars. For whatever reason, your Bronze and Silver units have high supply/low demand in the market, lower levels of Retail Sales Volumes and less-favorable Cost to Market ratios. They’re the bread and butter, volume cars. That’s the truth you need to make peace with—whether you’re appraising a vehicle or pricing it.”
“I got it,” the dealer said. “It looks like I need to take that message to my appraisers.”
Amen, I said.
The post ProfitTime In Practice: A Question About Bronze and Silver Vehicle Quantities appeared first on Dale Pollak.