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Lot Rot Ruins Profits: Four Tips To Achieving The Perfect Turn

One of my favorite locations for a twenty group meeting was in Park City, Utah, in January, where we were able to hit the ski slopes after the meetings each day. Those familiar with skiing are probably familiar with the phrase “the perfect turn” in respect to achieving optimal control of your body and equipment as you carve your way down the mountain.  Let’s look at ways to achieve “the perfect turn” as we strive to master our BHPH inventory.

Before going any further, we should acknowledge that there are dealers who feel that inventory turn is not an area to be focused on in the BHPH realm. After all, the argument goes that BHPH cars don’t depreciate like late model cars, so who cares if we carry it 30 days or 300 days? While there is some truth to that reasoning, there have been several studies done showing that the sooner a car is sold, the better off you are. Remember, unlike cheese and fine wines, most cars don’t get better with age.

In fact, most of the studies I’ve seen show an inverse correlation between age and gross. The longer the car has been held in inventory, the lower the gross when it is ultimately retailed. I would add to that our own unscientific observations that it seems like when we finally do retail those units, they seem to become heartburn cases after the sale.

Perhaps it relates back to the phenomenon we affectionately refer to as “lot rot”. Did you ever notice how if you put a car on the lot fully reconditioned and then review that same car after it has sat out there for 60 days, it seems to need to be reconditioned all over again? That’s “lot rot” and like all such conditions, it usually worsens the longer it goes unaddressed!

A side effect associated with “lot rot” is those cars apparently turn invisible to our salespeople. I guess familiarity really does breed contempt because the longer a car sits on the lot, the more the salespeople avoid it when showing cars to our customers. This really wasn’t what you had in mind when you hammered the importance of an effective “walk around”in training sessions, was it?

Let’s highlight a few tips to avoid “lot rot” and help us achieve the “perfect turn” in our inventory management.

Eye Appeal is Buy Appeal. This is one of those phrases that I have heard my Dad and grandfather say as long as I can remember. Maybe it has become cliché, but it’s a great reminder that it is always easier to turn the cars that catch the customer’s eye. Maybe it’s worth it to pay a little more to acquire the car that is red with a spoiler instead of the stripped white one. You may consider spending a little extra upfront to add a pinstripe or bed liner. Sometimes spending a small amount will make a big difference.

Don’t Compound Your Problems; Impound Them. I know we all like to think that we are batting 1.000 on purchases, but anyone who has ever bought inventory has to admit that occasionally we buy a problem vehicle. The key is once you have identified that problem vehicle, liquidate it ASAP. Normally, I wouldn’t advocate wholesaling to turn your inventory in BHPH, but this would be the exception. When you have such a vehicle, don’t compound your problems by trying to “make” it into a car or taking a chance by retailing to a customer. Those cars can turn a good customer bad in a hurry. Cut your losses, take your lumps and make it go away!

Red Light. Green Light. One of the best reports our dealer management system generates breaks down the current sales pace for each model and then the corresponding months supply for each model based on current inventory levels. This information makes it possible to really dial in on what the current needs are (by model) within our buying plan. For example, we publish this list weekly for our buyers. We highlight in red the models we have plenty of and color green the models we want to aggressively target this week. This keeps us from getting a glut of models that are not selling.

Make Good Projections your Pet Project. Your inventory projections don’t need to be set in stone, but they should provide you a good guideline for how much inventory you need. Though you probably want to make projections a year in advance, you will modify them at least monthly and probably more throughout the year. Don’t just compare August to July. Look back at your historical August sales numbers when forecasting expected inventory needs.

Look at it like this. If you have a $1 million inventory and $250,000 of it is overage, you are probably achieving your sales out of a $750,000 inventory in reality. Just from a pure business standpoint, how great would it be to free up that $250,000 in cash flow by running a leaner inventory! So for the health of your cars, as well as your cash flow statement, I encourage you to make turning your BHPH inventory a priority. Focusing on making the “perfect turns” will let you carve that inventory mountain like you are gliding on freshly waxed skis over a blanket of newly fallen powder!

Vol 5, Issue 8

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