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Walk the Talk in Inventory Management

We’ve all heard the statement before. You have to walk the talk. It’s not enough to say you will do something; you have to do it. It’s time for dealers to manage their inventory better. Dealers are talking about inventory management in record numbers, but are they walking that talk? Most know inventory management is the smart thing to do. Having the right inventory in stock has proven to increase gross profits and, with the increased turn of inventory, lower expenses, netting a significant improvement in the bottom line.

There are even several software products on the market to assist dealers with this process, but how many dealers are paying lip service to this aspect of their business instead of actually doing it? Well, if you are evaluating the concrete data supplied by dealers regarding their inventory, not many are making headway in inventory management.

NCM Associates recently completed a composite of Benchmarks® regarding this data for June 2006, 2007 and 2008. This composite highlighted a significant increase per dealer in new vehicle inventory values in stock for luxury ($2.3 million) and import dealers ($.2 million). Domestics actually managed to decrease their inventory by $0.2 million during the same time period. Now, some might say that the increase was due to the increase in values over that time frame, so we dug deeper to understand the data.

Proper inventory management is supposed to decrease the inventory days in stock, so did that happen over this same time frame?

New Vehicles - Days in Stock

June 2006  June 2008 
Highline  35/34

58/41 

Imports
Domesitcs 

53/44
62/73 

54/62
65/62

 


There was not a significant decrease in inventory days in stock, and for some it was a significant increase. Keep in mind that these are Benchmark® numbers, meaning this is the 75th percentile, not the average dealer. These numbers represent the elite in the industry.

There could be lengthy debate devoted to the argument that this is the fault of dealers or the manufacturers who pushes inventory down to the dealership level, but let’s move to the used vehicle side of things before we cross that path. Used vehicle inventory is certainly an area in which every dealer should be able to improve management. So are they?

 

Used Vehicles - June 2008

  Domestic  Import   Highline
Car          
$$ Inventory  650,446  928,771   1,926,017
Avg. Cost  11,031 11,249     22,469
Days Supply     58 54            53

 

Truck
$$ Inventory
Avg. Cost
Days Supply          




773,158
12,212
69


302,221   153,356
11,568      27,101
73             59

Used Vehicles - June 2006

  Domestic  Import   Highline
Car          
$$ Inventory  718,453  1,156,203   1,969,843
Avg. Cost  10,686 11,691        22,909
Days Supply     68 56              54

 

Truck
$$ Inventory
Avg. Cost
Days Supply          




895,031 
13,850
63


267,883   138,833
13,039      28,390
66             58

This data was based on year-to-date and would not have been significantly impacted by the truck and SUV meltdown we had this summer. As you can see, there wasn’t significant inventory curtailment evidence to support a tightening of inventory control. With this much concrete data direct from the dealerships, it’s hard to take a stance that dealers are making big gains in inventory management. Inventory management takes daily discipline, and dealers need to give more attention to their inventory if they truly want to improve their bottom line. It’s time to walk the inventory talk!

*All benchmarks are compliments of NCM Associates and have been provided by Kevin Cunningham, director of business development.  Questions, concerns or comments regarding benchmarks or Twenty Group programs can be e-mailed to [email protected].


Vol 5, Issue 11

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