Pub. 1 2019 Issue 2

Wholesale Retail Purchases Trade-ins out at a pace to sustain the incoming inventory. Thus, you have to constantly be in control of the “flood” gates to ensure nothing disrupts the flow. As you can see from the flow chart, you now have four areas which to establish controls and objectives and each are depen- dent on the others. Anything that disrupts the flow of either of these four areas will have an impact on the overall flow. Each of these inventory areas must have a separate plan of action for desired results in sync with the others. For example, let’s assume your goal is to achieve 50 retail-used sales per month. Write in the number 50 next to the retail arrow in the river flow chart above. Staying with the guideline that your retail sales should represent at least 60% of your total used vehicle sales you would need to achieve 83 total sales (retail and wholesale), which means 33 would be wholesale. Write in 33 next to the wholesale arrow. Now you must establish the needed inventory (inflow of the river) to support these retail and wholesale objectives (the outflow of the river). Let’s focus on just the RETAIL SALES first. Again, staying within guidelines, you would like for your RETAIL inventory to be made up of 50% trade-in units (that number has slowly declined from 60% over the past few years and varies by your make). Let’s also say you want a 45-day supply (also turn). Thus, to achieve the 50 retail sales per month with a 45-day supply of inventory the following numbers would be needed. • 50 divided by 26 work days (average in Florida) equals a daily sales rate of 1.92 units. • 1.92 times 45-day supply equals 86 total retail-used vehicles in inventory, of which 85-90% must be front line ready for sale at any given time (every day). • 86 units times desired mix of a minimum of 50% from trade- ins equals 43 units. That leaves 43 units that need to be acquired through outside purchases. Write these numbers next to the appropriate incoming arrows in the inventory river flow chart. The decline in new retail sales, and the decline in retail quality trade-ins, has steadily moved the New to Used retail sales from 0.85 used retail sold for every new retail sale, to a benchmark guide now of 1 to 1, and in many cases 1.25 used to new ratio. The high performing new franchise used vehicle retail operations are now approaching a 1.5 used to new ratio. This transition is being seen across the industry for numerous reasons such as the increased cost of new inventory floor plan interest and open lot insurance, se - lective factory new inventory allocations not in sync with their volume incentives, as well as declining new vehicle sales, etc. This is causing the inventory manager to seek more retail inventory from acquisitions instead of trade-ins as in the past, which makes proper inventory management even more important and impactful. Without excellent inventory management, you face the probability of declining used retail sales, along with new retail sales. Obviously, you would need to do the same for wholesale inventory (non-retail quality trade-ins and old aged purchased invento- ry). The mistake many dealerships make is not setting an established plan of inventory acquisition and disposal for wholesale inven- tory as well as retail inventory. Wholesale disposition is a profit center as well as retail. It is essential that you have a well-defined, established and accountable plan of action for both retail and wholesale. This is just the beginning steps towards more effective inventory control. Used vehicles represent the fastest depreciating inventory in your dealership. They also rep- resent one of the best returns on investment if managed properly. You have four used inventory categories that need to be managed properly and separate- ly: retail, certified, subprime, and wholesale. Each need to have established objectives for acquisition and disposal in terms of volume, day’s supply, dollar amounts, type and dollar mix, desired turn, and return on investment. All must be profitable. The entire operation needs to focus on es- tablishing all the processes and philosophies needed to ensure that you have the RIGHT CUSTOMER, in the RIGHT VEHICLE, with the RIGHT LENDER, to maximize your gross opportunities in an ever-tightening market today. Inventory management is just the be- ginning and just one part of the total puzzle. However, once you start with the big picture of the “flow,” you can then begin your trip down the river and not end “up the river without a paddle.” Issue 2 2019 9 CFADA.ORG