In 2019, it’s difficult to forecast exactly where our industry is headed. Vehicle sales have remained stronger for longer than most anticipated. The 17.3 million new vehicles sold in 2018 beat most expectations, but experts continue to warn a slowdown is coming.
The reality is this: The automotive market is too complex and unpredictable to determine when and if it will turn. This leaves dealers in an uncomfortable position. How do you capitalize on the current strength of the auto market while protecting against a possible drop-off in the future?
Having worked with thousands of clients across the country, we’ve identified some best practices for running a successful dealership that can help dealers navigate the ups and downs of the market:
1. Take a Holistic Approach.
Many dealers focus solely on the retail side of their business. While that’s understandable, as it is the most visible driver of revenue and profits, there remains a need to develop a wholesale strategy.
As part of this wholesale strategy, identify partners to help move your inventory quickly and at a good price, providing additional opportunities for selling when a vehicle isn’t moving on the retail side.
2. Emphasize Faster Turn Times.
Dealers need to be conscious about how much time they spend holding onto their inventory. It’s easy to get attached to a vehicle, holding out hope a buyer will emerge. However, this is the antithesis of an optimal strategy and can actually cripple your business.
It’s imperative to identify and stick to a consistent time frame concerning how long you are willing to hold inventory. Turning a vehicle in 45 to 60 days is ideal and allows you to regroup, cut holding costs, and identify vehicles that are more in line with your customers’ needs.
3. Avoid Overstocking and Overextending.
Purchasing an ambitious amount of inventory that cannot be moved in that 45- to 60-day window can lead to bigger issues. Establishing the proper amount of inventory your business can fund — and staggering acquisitions in a timely manner — can help make meeting payment demands easier to manage.
It’s critical to understand how to avoid overstocking your dealership lot and overextending your credit — even when sales are strong.
4. Leverage Floorplan Financing.
Dealers that take advantage of floorplanning for both auction and non-auction purchases will see increased cashflow available for operating expenses such as payroll and utilities. In uncertain times, having access to cash is crucial to keeping your business up and running.
5. Utilize Digital Channels.
All dealers should strive to take advantage of the latest technologies available to bolster retail sales, participate in wholesale auctions with ease, and access faster funding for titles. When used properly, digital channels can significantly improve efficiency.
While no one can predict exactly what 2019 will bring, at some point it is likely to present new challenges. Grounding your business in sound financial planning principles can lead to opportunities in even the most uncertain times. This can help grow your business during the industry’s upturns and sustain your business through the downturns.
Lucas Hancock is senior director of risk for NextGear Capital.