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 Cars/Trucks	June 2008 Cars/Trucks
Highline	35/34	58/41
Imports	53/44	54/62
Domestics	62/73	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?

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.

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	773,158	302,331	153,356
Avg. Cost	12,212	11,568	27,101
Days Supply	69	73	59

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.

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	895,031	267,883	138,833
Avg. Cost	13,850	13,039	28,390
Days Supply	63	66	58

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!

Vol. x, Issue xx