Over the last few years, fluctuating production and an unstable supply chain have made it difficult for car dealers to keep their lots stocked. Now, however, the automotive industry is making vehicles faster than customers can buy them, making it essential for retailers to manage their inventories carefully. On this episode of Inside Automotive, host Jim Fitzpatrick is joined by Dale Pollak, founder of vAuto and the executive vice president of Cox Automotive, to discuss inventory management strategies that prevent overstocking in the dealership.
The automotive industry is changing, which means that traditional best practices may soon become obsolete. This is especially true for inventory management. Although car dealers used to rely on velocity-based management principles, Pollak believes it is time for a new buy-sell paradigm. “For those dealers who are progressive, for those dealers who are astute enough to understand that the future will likely not be as kind to us as the past, I think for those dealers it’s definitely time to consider moving beyond velocity management to variable management,” he states.
Pollak lists three areas of inventory management that car dealers must master if they want their business to succeed: daily price management, acquisition, and appraising. Out of the three, price management is the most important since it heavily influences the dealership’s revenue and volume. While in the past it was impossible to track the impact individual pricing decisions had on the business’s success, through technology and a refined variable management process, managers can now track the process in real time. “It’s a really significant advancement in both the art and the science and the manageability to handle this very critical task,” Pollak remarks.
Appraising is another essential practice that car dealers must seek to master. Pollak notes that it is in a retailer’s best interest to narrow the range of appraisals among its various appraisers. While in the past it was difficult to critique an appraiser’s pricing decisions, managers can use variable management principles to identify when irrational beliefs impact the appraisal process. Going forward, dealers should be sure to measure performance where possible to ensure volume and revenue are not impacted by improper appraising techniques.
The last of the three categories, acquisition, has also changed. Car dealers can simply no longer rely on outdated methods to purchase their inventory. To make sure their variable management strategy succeeds, Pollak urges retailers to consider alternative ways to purchase stock beyond the traditional resources of auctions and trade-ins. This can mean buying vehicles off the street or from service department clients. Pollak recommends keeping track of multiple acquisition channels to measure performance and determine which sources produce the best options.
Although these recommendations can help car dealers, Pollak offers one major caveat. “I want to be very clear on this point,” he states. “You can absolutely perform in a stellar manner in each of these three critical areas…and still have suboptimal outcomes. That said, if you’re able to master superior performance in each one of these three areas, your performance consistently will be significantly improved over your performance otherwise if you have not done that.” Although the industry has grown comfortable with its tried-and-true tactics, car dealers should nevertheless learn as much as possible about variable management strategies so that they can prepare for the shifting environment in automotive retail. “It is definitely time, in my opinion, for dealers to consider this transition,” concludes Pollak.