Maintaining Gross When Normalcy Returns

May 25, 2021

It seems that every conversation I currently have comes back to the same topic: inventory shortages. Dealers across the country are experiencing this identical predicament. The conversation inevitably heads in one direction, focusing on grosses. Moreso, the question comes up about how can these grosses be maintained when normalcy returns. It is difficult to draw a line in the sand and select a side of where you stand on the future of grosses.

Let’s start by examining the last ten years. Where we are today is quite different from the last decade. Grosses are astronomical in comparison with the inventory shortage that we are experiencing. As time marches on, the juxtaposition of the past and the present will continue to create opportunities to drive higher grosses. These opportunities are fraught with possibilities, but can they actually be maintained?

More specifically, the last decade has shown us that grosses have shrunk on used inventory because dealers continually raced to the bottom. This practice puts everyone in the industry at a disadvantage. Third parties rewarded lower prices with higher-ranked listings. Additionally, potential car buyers were given the ability to search for vehicles quicker than ever before. This was the state of the industry that many had gotten used to. But there are lessons to be learned from the ebbs and flows of the last ten years.

As a result, it is important that OEMs learn this lesson as well and stop flooding dealerships with new inventory when things return to normal. Instead, they need to strike a harmony between what we have seen now and how much inventory was on every lot before the pandemic. When considering your inventory, consider finding a sweet spot between the two.

With new inventory hopefully ramping back up later this year and into 2022, it’s important to remember the grosses we’ve seen over the last year. While I don’t have a crystal ball, it is my guess that as inventory returns, margins will change. So, as we are celebrating the grosses we have today, we need to prepare for what the future might bring. The return of inventory will signal the restoration of normal grosses. The goal is to maintain higher margins and to find a middle ground between current grosses and racing to the bottom.

There are always going to be quick-turn vehicles—commodity cars with high mileage, non-CPO, and perhaps even off-brand. However, we’ve learned that more vehicles can deliver high grosses than before. Be sure to merchandise these vehicles properly. If the car is low mileage, make sure the customer knows that. If it has high-value features/packages/options, do your best to make the customer aware of them.

All of that to say that we need to drive engagement and conversations now to tackle the coming transition in inventory and grosses. Where do you see the industry heading? What new impacts will there be on the horizon? Let’s discuss these points and come up with a roadmap for the future of our industry together.