It’s Not Just Fortune that Favors the Bold

When I was told the magazine’s theme this month was inventory management, I thought of all the ways we have to control our inventory in the digital age—real-time competitor data, auction values, historical sales records, factory recommendations, etc. I considered writing about the influence of people on the “science” of inventory control, but at the end of the day, what do I actually practice?

My store is almost exclusively new-vehicle sales, and floor-plan costs are ridiculously low right now. So, my general manager and I have a different approach to controlling inventory—we don’t. Why? Because it’s not just fortune that favors the bold; your bottom line loves it when you take risks too.

Thinking back on your time in the business, how often have you been the one with the Cassandra Complex, warning of impending doom? How often have you been the “smart” dealer who knew gas prices were going to rise and ordered appropriately so that you didn’t get stuck with gas guzzlers? Ever have a lousy sales month and decide to not take your full allocation because you didn’t want to be stuck with too many cars?

Of course you have! You are a business person, and there is not one business strategy I’m aware of that says bet on everything, even the losers. But that is where our business is great; we have factories that will bail us out every time, and our bold (and, by normal standards, often foolish) moves pay off.

The summer of 2008 was the first time I saw the phenomena of having the wrong inventory become the right inventory. Every week, gas prices seemed to hit yet another record high. People were coming in by the drove to trade in their full-size trucks on compact sedans. Then something happened; the factory noticed the trucks were getting stale and they added a huge dealer incentive. The nameplate I was working for at the time had put so much cash on moving the metal that, as a dealer, we could offer full-size trucks at nearly 40 percent off and still be turning a profit.

This is America. We love a deal, and customers could not resist the temptation to jump at an opportunity to get a truck at such a steal—gas prices be damned. The dealer I was working for managed to make money by having a large selection of the least desirable vehicles on the market. What a business!

Being green in the business, I assumed this had to be a fluke, but I continue to see it time and time again. Recently, Lithia Motors Chief Financial Officer Chris Holzshu nailed it when he said in the June 25, 2012 edition of Automotive News, “The manufacturers incentivize us and the customers to buy vehicles that aren’t the hot products at the time. We are basically paid to move metal.”

If you know the factory will support you when it comes to moving metal, think of the other side of the coin. If you are cautious and conservative, when the tide turns, will you be ready or will you be scrambling for units? A while back I spoke to another sales manager whose dealer principal told him to not take his allocation, fearing slow sales. Once sales picked up, he had nothing to sell and was panicking.

Now, do you think the factory will be more likely to move heaven and earth for the guy who didn’t accept the allocation or the dealer who consistently believes in the product and takes the allocation? It’s not just planning; it’s keeping the right people happy, too. You are married to the factory.

A full inventory also has everyday sales implications. Now that we are solidly in the digital age, customers scope your website inventory before they contact you. If they are looking for a particular model and you have 20 while the guy down the road has three, who do you think they are more likely to visit? Who is more likely to have exactly what the customer wants without going through the hoops of attempting to dealer exchange (DX) one?

Speaking of DXs, you know that dealer in your region who always has exactly what you are looking for and holds it hostage? It’s better to have your own solid inventory than to be begging from that guy. A charming personality will get you only so far. If you have something he wants, you can actually start playing the game the right way.

Finally, with the rates for floor-planning vehicles being so low right now, it’s not like you are really taking that big of a risk by beefing up your inventory. But for those of you who still have an aversion to risk, remember this simple guideline my boss gave me when I first started ordering: “You can never have too many inexpensive units. It’s the ones loaded to the gills that sit forever.”

Vol. 9, Issue 8