I recently completed an exhaustive study of the ramifications inventory decisions can, and do, have on the new vehicle dealership’s bottom line. Many things were clearly revealed and confirmed by the data as a result of the study and the following list is not intended to be a revelation, nor is it, all-inclusive:
- Quicker turning vehicles gross more per unit on both the front end and back end.
- There is an inverse correlation between inventory age and gross profits (as vehicles age, gross prof-its decline.)
- Gross almost always goes up as availability goes down and the opposite is also true.
- Sales compensation in real dollars and as a % of gross, rises in direct proportion to vehicle age.
- Specific model numbers, colors, equipment and engine combinations sell faster than others.
- More inventory does not mean more deliveries.
- Salespeople tend to lead prospects to the “freshest” inventory.
-
Dealers advertising dollars are largely spent on slow moving inventory.
-
Seasonality, special events and incentive programs are here to stay.
-
Sales forecasts are very unpredictable and usually overly optimistic and inaccurate.
By far, the most revealing fact that emerged from this study is how much money it costs the dealership for each extra days supply of new vehicle inventory. In fact, I re-ran the numbers five times to be sure that the calculations were accurate. Here is what I found…
I used the following numbers to calculate the bottom line impact of floor plan expense on the typical new vehicle dealership. I realize your numbers may be different but the impact to your bottom line is there none the less. You may also notice that I did not con-sider the so called “free floor plan programs” that you may or may not have available to you because the truth is that dealers are paying for these pro-grams in one way or another.
- Average monthly new unit retail sales 50
- # of new units in inventory in an average month 165
- Average cost per new unit $28,000
- Interest rate calculated at prime +1
Doing the math with these variables this store has a 99-day supply of vehicles in an average month and the annualized floor plan expense for this store is $427,350
If this store reduced its days supply to 90 days it cal-culates to $388,500 – a net savings $38,850 from its current 99 days supply.
For each 1 day supply reduction, a net annual savings of $4,316.00 is earned for the store.
This floor plan interest savings is in addition to any adjustments made due to the ten bullet points listed in the opening of this article. The direct impact to your bottom line will undoubtedly be far greater than simply the floor plan interest savings. All I know is that precise vehicle inventory management can sig-nificantly impact your bottom line in a positive way.
As most of you are aware, my passion for the past 10 years has been vehicle inventory management. For this reason, I have developed a simple to use,
“Revenue Impact Calculator” that I will be happy to send you upon request. If you would like to see your actual numbers and how your bottom line is being impacted, drop me an e-mail and I will send you the link to the file. It will take less than one minute to show you exactly where you are.
Get involved in precise vehicle inventory manage-ment on a daily basis. You will be glad you did.