You’ve undoubtedly heard the phrase that oil and water don’t mix.
If you try to mix them, the oil floats on the water. Each liquid stays separate from the other, even if they’re in the same container or glass.
I’ve been thinking about oil and water, and other things that don’t go well together (like black shoes and brown belts) the past couple weeks. The musings owe to a scenario that I’ve seen repeat, multiple times, as I’ve met with dealers to discuss Provision ProfitTime.
The scenario goes something like this:
I’ll ask the dealer to go through two evaluations of used vehicle inventory. First, we’ll look at the dealer’s Bronze vehicles, which are units that ProfitTime has determined to possess the least investment value of all units in the dealer’s inventory. Next, we’ll look at the Platinum vehicles, or the units that offer the most investment value and gross profit potential.
With the Bronze vehicles, I’ll inevitably find a sizable share of vehicles that have been in inventory for 30 days or longer. As we examine the cars, I’ll see that the Price to Market ratios are often too high, which means the vehicles aren’t as competitively priced as they should be to sell quickly.
When I ask about the pricing decisions, and the market’s apparent lack of interest in the vehicle, the dealers will often point to the vehicle’s age. In one instance, a dealer and I were looking at a 33-day-old vehicle. “We’ll start discounting it aggressively next week, when it hits the 40-day mark,” the dealer says.
That’s when I’ll point to the vehicle’s Bronze designation. “This car, based on its investment value, has no business being in your inventory longer than 10, maybe 15 days,” I’ll say. “The longer you wait to price it competitively, the more likely you’ll end up losing, or making less, money than you should.”
An almost-opposite scenario occurs with Platinum vehicles. Despite the high investment and gross profit potential these vehicles represent, I’ll find that dealers began marking down their asking prices within a few days of their arrival in inventory.
In these cases, I’ll also ask dealers and managers why they’re discounting vehicles so quickly. Inevitably, they’ll note that they’re dutifully fulfilling the steps of their age-based pricing strategy, under which every vehicle gets a mark down when it hits a specific interval, like three, five, seven or 10 days in inventory.
“I get it,” I’ll say. “But these vehicles, because of their strong investment position and market appeal, don’t need any help. You can afford to give these vehicles more time on the market before you start eating away their gross profit potential by reducing their prices.”
Both of these scenarios underscore why I’ve come to believe that, like oil and water, calendar time and ProfitTime simply don’t mix.
If you’re managing used vehicles strictly based on the calendar, you’ll inevitably let some cars remain in your inventory longer than they should, and you’ll effectively give away vehicles you shouldn’t.
That’s the beauty of ProfitTime’s investment value-based management methodology.
With ProfitTime, each vehicle’s investment value, not the days on the calendar, serves as the primary driver to determine whether you need the car, how you should acquire it and where you should price it competitively.
I like the way used vehicle manager Jim Mason of Steven Toyota, Harrisonburg, Va., describes how ProfitTime’s investment scores have changed his approach to pricing used vehicles:
“ProfitTime actually reinforced in many ways a lot of speculation I had about where some cars, like Bronze or Silver cars, should be priced out of the gate. With ProfitTime, we’re a little more patient with Gold and Platinum cars, and far less patient with Bronze or Silver cars. With Bronze cars, in particular, our new mantra is that I would rather sell it in two weeks and make $100 rather than lose $800 in 40 days.”