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By David Meyer, Executive VP
In the world of Buy Here Pay Here, dealerships often measure their profits in terms of the final sales price on the vehicle sold. But focusing only on gross profits means you may be overlooking a significant factor: the cost of an aging inventory.
Consider the vehicles you currently have on your lot. You may sell one of those vehicles today for $7,000. But think about the daily costs of keeping that vehicle on the lot, before you sold it. Take into account the operational costs you accrue every day, for every vehicle — lighting the lot, insurance, vehicle upkeep, staff time.
The average daily cost of keeping a car in inventory is around $21 a day. Now let’s say you had that car for 60 days before you sold it. You’re now looking at $1,260 in operating costs — which translates into $1,260 less in profits. Add those up across all the vehicles in your inventory, and your gross profits suddenly take a very big hit.
To protect your profits, you must move your vehicles off the lot — so you can bring in new inventory — as soon as you can. Maximizing your inventory turn will go a long way to maximizing how much money you get to pocket on each vehicle sold. Ideally, you don’t want to keep a vehicle on the lot for more than 60 days. After all, your cars may be worth something on paper. But the cash isn’t yours until the car is sold and moved off the lot. And remember: a sold vehicle brings in additional revenue through F&I and your service department.
So the question is: How do you go about moving vehicles off the lot faster? One smart strategy is to focus less on selling the car, and more on selling the payment. By verifying credit scores, payment histories, and STIPS, you’ll be able to better match the right customer to the right vehicle — with a monthly payment that a customer can handle. With their credit challenges, your customers understand they won’t be able to buy whatever car they want — or financing from just any dealer or lender. You’ll be able to offer them the special financing they need on a vehicle and payment they can really afford.
It’s also important to make sure you’re staying on top of your inventory. Look at the vehicles on your lot once a week to identify those cars that have been there longer and need to be moved. Adjust the pricing on these older vehicles, incentivize your sales team to sell them, or even consider sending those oldest members of your inventory to auction. Do whatever you have to do to get them off your lot quickly.
When it comes time to bring in new inventory to replace the ones you’ve sold, consider your market and customer base carefully. Know your demographics, what kind of vehicles sell, and which don’t so you can meet your customers’ needs and demands. A few higher priced vehicles might bring in traffic, but make sure the majority of your inventory consists of vehicles with payments your customers can live with.
Last but not least, look into tools that help you offer your customers competitive pricing without the costly risk. A GPS-based vehicle tracking system like GoldStar GPS allows you to be more competitive with your terms with greater confidence, knowing that you can confirm your customers’ STIPS, send your customers automated payment reminders, and quickly locate and recover the vehicle when necessary. With GoldStar GPS, dealers are enabled to cast a wider net and subsequently finance more without any additional risk. This allows them to increase the speed with which they move their cars on and off the lot. Because GoldStar GPS makes it easy for dealers to easily track inventory, risk is lessened dramatically, which means more profit for the dealer.
To learn how GoldStar GPS can help maximize the profits of your inventory, visit www.GoldStarGPS.com.