Why inventory management is more important than ever

May 19, 2020

Aging inventory is always at the forefront of every great used car operation. Limiting the amount of cars that stack up in your 45 to 60 plus day old inventory buckets takes a lot of work in normal times, but special attention to your inventory management system is more important than ever in economic down turns like the ones we are witnessing in the wake of COVID-19.  

Dealers are seeing an unprecedented amount of aging inventory that has been greatly devalued by the drop in recent wholesale values, crushing their profits and ability to turn a profit in used cars. Here is what the analyst at Manheim stated about the historic decline.

Wholesale Prices See Historic Fall in April

“Wholesale used vehicle prices (on a mix-, mileage-, and seasonally adjusted basis) decreased 11.41% month-over-month in April. This brought the Manheim Used Vehicle Value Index to 125.8, a 9.2% decrease from a year ago, and the lowest level in three years.”

Wholesale values have stabilized some, but with more aging inventory in dealer’s current stock, what should dealers do to limit the losses and right the ship to return to profitability?

Here are 6 tips to help manage your aging inventory.

  1. Inspect each vehicle personally for any cosmetic items that could keep a customer from buying.
  2. Put all aged inventory on showroom or designated high traffic area with clearly marked pricing.
  3. Re-write your descriptions and check your pictures. “A Picture is Worth a Thousand Dollars
  4. Use banners on your main photo to show shoppers high value options or special pricing
  5. (do not use “Manager’s Special” it does not tell the customer anything.)
  6. Another idea is to mention “Home delivery and test drives” in an overlay or banner
  7. Verify your pricing strategy, lower the price and take the loss.  You already have incurred the loss, you just do not want to admit it yet.
  8. Check your third-party ads daily and make sure aged inventory is getting top priority.

Inventory Management is Priority #1

While buying cars at auctions and other sources you should designating most of your time to marketing and inventory management is important to keep your inventory at or below a 30-day rolling average.  This is where the real battle is won to decrease aging inventory and increase your turn rate.

One last tip.  Create a daily routine to complete all the steps above and start with your oldest cars first.   Do not neglect your fresh inventory. It is important to do this process on every single car to maximize your return on investment and decrease aging inventory problems.