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?
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:
- 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.
- 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.
- 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.
- 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.