Inventory Management

5 Reasons Your Dealership Needs to Overhaul Inventory Management

The average car dealer has about 200 cars in their inventory at any given time and sells 87.5 vehicles a month. But dealers’ margins are shrinking, and many find that they’re selling more expensive cars, but making less money off of them. Sticker prices on new and used cars are going up, yes, but so are the costs dealers incur in acquiring these vehicles, making any repairs that might be needed, and then keeping them on the lot until they’re sold.

If you’re finding that your dealership isn’t as lucrative as it once was, maybe it’s time to consider overhauling your inventory management strategy. Strong inventory management can go a long way towards lowering your costs. It can also help you sell cars faster, keep track of the cars you have, and eliminate the backlog of aging vehicles that no one wants. Let’s take a look at some signs that it’s time to overhaul your inventory management process.

1)   You Need to Streamline Your Appraisal Process

Buying the wrong cars is one of the most fundamental mistakes most dealers make when it comes to managing inventory. It doesn’t matter if a car is in excellent condition if it’s a make and model that no one wants to buy. But while a weak appraisal process can leave you struggling to sell cars from day one, a strong appraisal process will guide you to the cars that customers want. The data you can gather from automotive inventory management tools will give you the insights you need to overhaul and improve your appraisal process, including sales history and market data for that make and model.

2)   You Need to Optimize Your Inventory to Meet Local Market Demand

What cars do your customers want to buy? That will depend on your local market. Different buyers in different areas and environments need different things from a car. A rural buyer may be interested in pickup trucks or four-wheel-drive vehicles that can handle country backroads and farm work. An urban buyer may be more interested in fuel efficiency and compact size.

How can you tell what kinds of cars people in your area want to buy? You can collect market data from many sources, including from automotive inventory management tools that give you information such as how often and where a car is test-driven. They can also help you get a grip on how the cars in your inventory might measure up against newer models with more features, or better-known brands. You can also investigate your own sales history and pay attention to the makes and models customers most often ask to see when they come to your lot. Apply your insights into pricing and buyer interest to aggressively price those units that are harder to sell, and turn over inventory faster and more efficiently.

3)   You Have Too Many Aged New Cars on Your Lot

According to the National Automobile Dealers Association (NADA), about half of the average dealer’s new vehicle inventory has been on the lot for longer than 90 days. Aging vehicles are a drain on your dealership, especially since cars depreciate with age. Cars that are just sitting on your lot for weeks or months on end represent stagnating profits. You may not even be able to sell a car for the same price three months from now as you could today or tomorrow, even if it’s brand new and has no defects. The window of profitability for the sale of any given car is one that is rapidly closing, but a stronger inventory management strategy can help you get those aging cars off your lot before they drag down the whole operation.

4)   You’re Trading Your Best Vehicles to Other Dealers

It’s easy to fall into a pattern of trading your best vehicles away to other dealers, or selling the freshest vehicles on the lot first while aging vehicles continue to languish. Many dealers don’t even realize they’re doing it. Usually, these problems become apparent when a dealer takes a more proactive approach to inventory management based on market needs. Pay attention to which cars you’re selling and which ones you trade away to other dealers, and how much money it’s costing you. The fix may be as simple as moving aging cars closer to the showroom where customers and sales staff can see them.

5)   You Need Greater Transparency in Your Online Vehicle Listings

These days, most buyers begin the initial stages of shopping for a new car the same way they shop for most anything else — by going online. Many will have a specific make and model picked out by the time they arrive at your dealership. But if you’re not transparent in your online vehicle listings, you could be losing foot traffic.

Customers want to see the price of cars listed in your online inventory, as well as their features, and they also want to see the most valuable or desirable features listed first. Of course, you should also include all the bells and whistles, because many customers use these listings to select the car they’re going to buy. If your listings aren’t offering customers the information they want, a revamp of your automotive inventory management strategy could help you beef up your online vehicle listings with the info customers want, including mileage, fuel efficiency, price, and condition.

It’s getting harder than ever to make a living selling cars, but with the right tools, you can stay in the game and stay competitive. Manage your automotive inventory well, and you’ll continue to send happy customers home in their dream cars for the rest of your sales career.