Dale Pollak Advises Used-Car Dealer Seeking Strategy for Success

The Sit­u­a­tion:

Lar­ry Weath­ers III, Veloc­i­ty deal­er­ship used-car own­er, is in the process of build­ing his used-car busi­ness and wrote to Dale on his blog seek­ing input on ques­tions he had regard­ing his desire to cre­ate a rea­son­able matrix of tar­get vari­ables.

The Issue — as Seen by the Deal­er:

I want to increase sales and am not clear on the tar­gets in the crit­i­cal areas. What do you feel is the prop­er blend to achieve a 75 retail unit per month deal­er­ship?

The Back­sto­ry:

Lar­ry Weath­ers III, Own­er and Gen­er­al Man­ag­er of Weath­ers Motors, Inc. Lima, PA and a Veloc­i­ty deal­er, has been work­ing hard to make his pre-owned oper­a­tion suc­cess­ful, since his new-car oper­a­tion was lost in 2009 dur­ing the Chrysler bank­rupt­cy. Says Lar­ry: “Some said we couldn’t make it. I felt dif­fer­ent­ly and proved them wrong!”

4 Crit­i­cal Con­di­tions for Suc­cess:

  1. Estab­lish an inven­to­ry com­prised of vehi­cles with a rea­son­able mar­ket day’s sup­ply. Any vehi­cle with less than a 60 day sup­ply to be for­tu­nate from a supply/demand per­spec­tive. Six­ty-one to 90 is where most vehi­cles are. With respect to your entire inven­to­ry, how­ev­er, 75 MDS or less is min­i­mal­ly accept­able. Remem­ber that the low­er the MDS, the high­er the demand and low­er sup­ply, and this holds pos­i­tive impli­ca­tions for your prospects for future suc­cess.
  2. Main­tain an inven­to­ry that is prop­er­ly priced. This means know­ing which ones to price high and drop grad­u­al­ly, and which ones to price low and drop fre­quent­ly. I like to see vehi­cles priced in 15 day age buck­ets rough­ly as fol­lows: First 15 days, 97% of mar­ket, 15–30 days, 95%, 30–45 days, 92%. There should be no inven­to­ry over 45 days, and the above ref­er­enced price points may vary accord­ing to the mar­ket day’s sup­ply of your inven­to­ry in each respec­tive buck­et. In oth­er words, buck­ets with a high­er MDS should be priced even more aggres­sive­ly and vice-ver­sa for low­er MDS buck­ets.
  3. You MUST have a min­i­mum of 50% of your inven­to­ry – at all times – under 30 days of age. The first 30 days is the peri­od of time where your vehi­cles have enough gross mar­gin poten­tial to make a mean­ing­ful mar­gin­al con­tri­bu­tion to the bot­tom line. There is a direct cor­re­la­tion between the per­cent­age of your inven­to­ry under 30 days and your prof­itabil­i­ty. Top per­form­ing Veloc­i­ty deal­ers always have 55–75% of their inven­to­ry under 30 days of age.
  4. Your cost to mar­ket can­not exceed 84% (exclud­ing your pack). It is sim­ply impos­si­ble to make an accept­able finan­cial return if there is not enough spread in your inven­to­ry between your invest­ment and what they can like­ly be sold for.

Dale Pol­lak, founder of vAu­to, Inc, and author of the Veloc­i­ty books, can be reached at [email protected] or vis­it him on his blog at Dale Pollak.com.







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