Welcome to this week’s episode of Used Cars Weekly, the original CBT News show dedicated to bringing car dealers best practices and tips for the used car department, in-depth dealer interviews, hands-on dealership strategies, as well as vendor analysis. Today, host Jasen Rice, founder of Lotpop, discusses how you can position your used vehicle inventory for the upcoming tax season.
Last week, Rice explored some economic conditions that paint a picture of what tax season might look like this year. In this episode, it’s all about positioning yourself in the best way possible. According to Rice, retail vehicle volume, on average, started tapering off around last November. By December, car dealers had to make a lot of difficult decisions regarding how they manage their inventory bucket. Now, in January, Rice still sees car dealerships keep their fresh inventory moving.
|Related: Will the upcoming tax season make or break used car sales?|
Typically, you want to increase the number of cars you are selling fresh because gross profits are lucrative. So, disciplined car dealers are selling more of their inventory fresh, yet, they see volume go down. The good cars move fast, and the bad ones are starting to stick around longer. This can lead to an aging problem come February.
At one dealership, in a two-week period, Rice says 75% of the used vehicle inventory was 0-30 days old, and the fresh inventory was positioned well. 21% of the inventory was 31-60 days old, which is, ideally, where used car managers should aim. You want to sell at least 5%, or more, than what each bucket currently has in it to prevent bleed through. In order to do this, your middle bucket (31-60 days old) should stay below 25%.
On the other hand, another car dealership only had 49% of its used car inventory fall between the 0-30 day age mark during the same period. 35% of vehicles were between 31-60 days old, and 15% were 61+ days old. These numbers indicate to Rice that this dealership might have an aging problem. If you are positioned like this car dealer, then you will need to sell 40% of your middle bucket (31-60 days), and try to bring the overall percentage down to 20. Obviously, the more vehicles you have between 31-60 days old, the less gross profit.
It’s crucial to get a robust inventory management process in place, so you can prepare for sales during the upcoming tax season. Between these two dealerships, the first will see greater opportunities for gross in March and April, while the other will have to make tougher decisions regarding inventory.
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