Anyone who has heard me speak on the subject of special finance or read anything I have written knows how important I believe proper inventory is to the success of the special finance department. It is so important that I rank it ahead of well-trained personnel, as even the best people cannot structure a profitable and approvable deal without the proper inventory.

It seems about every third article I write discusses some aspect of proper SF inventory, therefore it will be impossible to address it completely here. As such, and with the strong positive momentum created by so many dealers returning to a niche that they abandoned a few years ago when they thought it had died, I am structuring this article on inventory more towards the masses, not those who are already actively engaged in the market.

There are two separate camps when it comes to the masses. Those who think they have good inventory because inventory software tells them they do, and those who don’t know, but assume that they don’t believe they have good inventory. For both sides of the fence, this article will show you how you can do a quick examination of your inventory that will give you a general idea of how well you are situated. It will also refute the myth held by the hard-headed that you can’t buy inventory that works with SF.

First, let me start with what I define as the foundation of SF inventory. Are there exceptions? Sure, but you don’t focus on the exceptions; you focus on the rule. SF inventory is that which ranges from $19,000 in cost (Tier 1 SF customers) down to $7,000 (Tier 4 SF customers), is generally (depending on finance company programs) current year plus the last seven years , a minimum of $500 below average trade value of NADA, KBB or Black Book, and under 75,000 miles. The inventory mix needs to be held in percentages that fit both the credit demographics of the people walking into the dealership and the finance company programs that apply to those customers (read some of my older articles to determine that).

As I said, I have heard the statement, “You can’t find inventory like that where we are,” now for 22 years. I just laugh. It means that someone isn’t willing to look for it, isn’t being paid to look for it or just likes to be outsold by their competition. I promise you there is someone else in your market who is buying it by the truckloads, and most often at the very same auctions you or your buyer attends. Additionally, there is so much technology available today to quickly determine if a vehicle will work or not. One such tool is Bidzpin (the iPhone app) which uses the very same methodology that my buyers and I used a decade ago and does what once took us minutes per car in less than 10 seconds.

Now, for the quick assessment: first download your inventory to an Excel spreadsheet. (If you can’t do this, you can do it on paper; it just takes longer.) The vehicle info you need is the year, make, model, mileage, age and cost on-the-lot. Some systems will allow you to book out the vehicle by average trade value, and if so, do it using the book that you use most often with your finance companies.

If you are able to obtain the book value, you can then create a column for the “spread.” I define spread as average trade value minus on-the-lot cost. This will be a critical column. Now the fun begins as we start sorting the inventory.

First, sort the inventory by the model year column. Highlight any model year that is not current-plus-seven in yellow. Next, sort the inventory by mileage. Highlight anything that is over 75,000 miles in yellow. Next, sort the inventory by cost. Highlight everything that is under $7,000 and over $19,000 in yellow. Next, sort your inventory by either the spread or by age. If sorting by spread, highlight any inventory that is greater than a negative $500 (that means if something is negative $200, $150 or $100 they would be highlighted in yellow). If sorting by age, highlight anything older than 59 days in yellow. Next, if you have average trade value, sort your inventory by that column and highlight anything under $7,000 and over $21,000 in yellow. Finally, sort your inventory by make. There are a few vehicles that your finance companies will exclude, such as Hummer, Suzuki, exotics, etc. Highlight any of those in yellow.

After all of these sorts, you will likely have a number of yellow cells on your spreadsheet. Any units that have one or more cells highlighted yellow are generally not considered appropriate for special finance. If you have the ability to sort your spreadsheet by cell color, do so. Set your sort for each column to be sorted this way. By doing so, the inventory with no yellow cells should instantly flow to the top or the bottom of the spreadsheet depending on your sort preference.

Once you have done this, perform one final sort. Sort just the SF units that you have identified (the ones not highlighted in any manner), and do so by the (better way) average trade value or (acceptable way) on-the-lot cost. What you are looking for is a good mix  of vehicles throughout the range from $7,000 to the top. Generally, without getting into credit demographics and specific credit tiers, the fewer expensive vehicles you have, the better.
How many units do you have in inventory that will work for SF? You need to have a 30-day supply of units to match your anticipated SF sales rate.

While this is not an exact calculation (desktop software such as ProMax Unlimited or SalesMaker can be much more detailed), you generally won’t be far off. For example, if you are using inventory age rather than average trade value, there may be some vehicles that cross over one way or the other. My assumption is that if you have had a vehicle for 60 days, it has gone through two book cycles and has likely depreciated enough so that it won’t work. That obviously may not be the case, but at least this will give you a relatively clear picture of how far away from the ideal inventory you currently sit.

Remember, it takes having all 10 critical components in place to have success in special finance. However, even if you don’t have all 10 in place, but you do have proper inventory, you will put some deals together that you would have never been able to without the right inventory.

I can summarize the mindset necessary to maintain a proper used vehicle inventory for SF with two simple axioms. First, it doesn’t make any difference what Manheim Market Report (MMR) value or true wholesale market of a vehicle is; what is paramount is that you buy it in regards to the book value with which you will sell (finance) it. Second, buying or trading for SF inventory requires a plan and the discipline to stick with it.

I never said buying this inventory is easy, but it is being done in every market. You likely will have to look at eight to 10 vehicles in order to buy one. The difference, however, between dealers excelling at SF and those who are not is those who excel are the ones willing to devote the time and energy to finding the proper vehicles for their department.

Next month, I will address the third critical component – personnel.

Until then,
Great Selling!

Vol. 9, Issue 3

About the author
Greg Goebel

Greg Goebel


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