Inventory Strategy Post Coronavirus: Common Sense - Economics - Attention To Detail

April 7, 2020

While no one knows what the future holds for our country or our industry, everyone seems to be looking for guidance on what to do now and after we emerge from our current situation. I’ve been speaking to 5-10 dealerships across the country nearly every day lately. From small rural dealerships to some of the largest dealership groups in the country, everyone has a slightly different perspective right now. Some have operations that are completely shut down (sales and service), some are selling a conservative number of vehicles remotely and servicing significantly less as well, and a small number are having double digit sales days in spite of the challenges.

I wanted to share some of the takeaways from many of these conversations. Here’s what’s on dealers’ minds right now and some advice from some very successful and experienced operators as well.


1.) New car incentives are the strongest they’ve ever been, how is this going to impact used and CPO?

Dealer Advice: With 0% financing for 84 months, deferred payments for up to 6 months, and job loss protection programs like the Hyundai Assurance Plan, a “next to new” late model pre-owned vehicle or even a certified pre-owned vehicle have slightly less of an edge than they did a few short weeks ago. The gap in affordability between new and pre-owned was always the most obvious advantage, but with term lengths and APRs likely to be unmatched on the pre-owned side that gap is going to be narrowed in the near term. However as of April 3, 2020 CPO programs have been rolled out by BMW, Infiniti, Lexus, Nissan and Toyota.  Some have deferred payments for up to 3 months on select models. Brands like Subaru, Acura, Jaguar and Land Rover are offering sub 1% rates as well.

As we return to some normalcy again the market will be flooded with months of off lease vehicles, previous rentals, and trades in a condensed period.  Between March and July there are about 1.8 million leases set to expire. This means we will likely see wholesale prices drop (or at least stay compressed).  But keep in mind with production of many new vehicles halted for months there may be a time in the near future where a shortage of new vehicles impacts the value of used as well.

Be mindful of how aggressive you get when you feel like the market is at its low point. With big risk can come big rewards, but also big losses (just like the stock market).  Communicate with your sales team and BDC and get a pulse on what the actual demand is with low funnel customers in your pipeline. The market will be more volatile than we’ve ever experienced the rest of the year, so be ready to act quickly.  You may need to reallocate resources to have one person laser focused on what the market (wholesale and retail) is doing daily.

2.) With unemployment at record numbers, pay cuts for many with jobs, and businesses closing, the need for subprime financing is going to be a likely reality for many.  Subprime financing typically requires slightly different inventory and a slightly different pricing strategy in order to account for down payment requirements and bank fees.  How should I adjust my inventory strategy to account for this?

Dealer Advice: Any changes in inventory strategy based on “what if” scenarios can be risky. If you’ve always had a healthy amount of subprime business, advertised for it for years and are well equipped with the appropriate lenders you can likely prepare to ramp up this segment of your business over the coming months.  Affordability from a monthly payment and down payment perspective will be important factors. Here’s a good frame of reference: a customer will need at least 10% down, want a payment under $500/ month, and have an APR of at least 18% in most states. This is a $16,000 ACV vehicle on the high end. If you are in a lower income area even less.

3.) With sales restricted or shut down completely and traditional auctions closed what should I be doing with my aged inventory?

Dealer Advice: Short answer, try to retail everything you can. You are unlikely to make money wholesaling through any of the channels that are open right now. Used car managers and buyers across the country are laid off and furloughed right now. Independent dealers have had their flooring lines cut and some will go out of business quickly. This is simple supply and demand. There’s a lot more people looking to get rid of aged inventory than there are buyers trying to buy that aged inventory. Get your pictures, merchandising, and descriptions close to perfect. Make sure each vehicle display page stands tall online and answers the questions your customers may have. Remember people aren’t willing to click “buy now” and use your digital retail tool until they determine “is this the right car for me?” If you are part of a group make sure you are sharing inventory right now. There are interested customers looking for a specific vehicle that a sister store may have.  Help each other out.

4.) What can I do to differentiate my pre-owned cars and my dealership right now when every sale matters more than ever?

Dealer Advice: It’s not just about price, in fact it may be about price less than ever. Affordability is still important, but health, safety, confidence, and flexibility are likely more important.  Communicate to your customers what you do to clean and disinfect your vehicles and your facility. Clearly describe how the remote or “touchless” sale and trade process works, and make sure it sounds easy.  Do you have a 3, 5, or 7-day return plan? Do you offer job loss protection or a vehicle return plan on your used vehicles if a customer loses their job? If you do all of these things, is it not only evident on your site, but on your third party sites through your descriptions and in your social media campaigns?

5.) What type of vehicles should I be most worried about right now?

Dealer Advice: Luxury vehicles with a big price tag, one year old domestic vehicles, base model / previous rental vehicles and vehicles with high mileage per year. Luxury vehicles will have less qualified buyers in the market than they did a month ago. One year old domestic vehicles will be competing against new vehicles with deferred payments and 0% financing with a longer term available on new. Previous rentals and base model vehicles will have more competition than usual with better equipped trades and off lease vehicles that will be hitting the market at the same time. Lastly vehicles with high mileage per year will stand out more than ever to a shopper when many vehicles that hit the market will have not been driven for several months. This can push those cars to page two and beyond on third party search results pages.

There are so many variables to take into consideration.  The software, data, and metrics that we’ve relied upon for years are not providing us with the clear, easy, and actionable insights that we have been accustomed to as the market is in flux. We need to communicate more with each other within the dealership, communicate with our friends in the industry, and pay close attention to what is happening on a daily basis. The next several months will be a challenge for all of the operators in this industry, but the most prepared, open minded, and flexible will emerge on top as they usually do.  Watch your expenses, spend your money wisely, and be weary of any new software “widget” that claims to make all of this easy for you (this will not be easy).