If you follow me on LinkedIn or read my blog, you know that I get a little crazy about pushing the envelope and seeing how lean I can run the inventory and create the highest turn rate possible. That’s easier to do when wholesale inventory is plentiful and you never have to worry about not being able to source cars. The highest turn rate I have achieved is 24 times a year at one of our Lexus stores. We we’re running that store so lean, cars were selling before they arrived at the dealership from auctions half way across the country and recording record month’s with no aging issues.
I was reflecting back to that time this past Wednesday during a consulting call I was on for an investment firm that was looking to invest in publicly traded automotive companies, and it finally hit me. That’s exactly what dealers are being forced to do in today’s COVID-19 pandemic disrupted used car market. Better Inventory Control, learning how to do more, with less inventory.
Dealers across the country are setting sales records month after month with less inventory, willingly or unwillingly, and soaring gross profits have followed right behind. For example, according to Cox Automotive statistics dealer inventories were running at 100 percent of their levels in May of 2019. By mid-June, dealer inventories were running at 88 percent of levels in June of 2019. As of the third week in July of 2020, dealer inventories are at 87 percent of where they were this time last year.
Dealers, and specifically used car managers, should step back for a moment and examine what took place in this unprecedented time. If you haven’t noticed, better inventory control creates an atmosphere among customers similar to a piranha feeding frenzy. You have the right car, maybe the only car, at the right price and customers are willing to pay your asking price.
Is There a Change Coming Soon?
A month ago I would have said yes to this question. Everyone was waiting for Hertz to unload inventory due to their recent Bankruptcy that might have reversed the current climb in the wholesale market. I receive a reply on one of my post on LinkedIn by a good friend Scott Bender. Scott has over 30-years of successful automotive retail experience and currently is the Senior Buyer for Kars Wholesale LLC. Here was Scott’s reply to my post, “Retail Used-Vehicle Supply Slumps to New Lows”
“Don’t expect anything to change. Many have been waiting on Hertz to unload inventory due to Bankruptcy. Well, my inside source told me yesterday, Hertz has bought itself some time by paying creditors, which gives them now 90-Day extension. We are reaching that point on the year when new production will shift to the new model year, causing some retooling and delays of new inventory hitting the pavement. As Cox stated, price is what’s driving consumers to used vehicles. We all understand new vehicle sale requires strong incentives to sell. Manufacturers have been pinch as well due to COVID and may not be able to incentivize this high priced new inventory enough to attract consumers away from used.
My thought is that we will see continued demand, reduced supply on used, which will drive the wholesale market beyond what we have ever seen before. Consumers are comparing similar new vehicle prices to used vehicles 1-2 years old. This retail new prices comparison to a similar 1 year old vehicles will allow dealers to retail vehicles higher than ever before. My point don’t be afraid to buy at these wholesale numbers. We have not seen the top yet. If you can’t buy now in this market, you will never be able to buy in what is to come!”
Things Change Fast in This Business
Just 2 days after Scott’s inside connection to Hertz told him there was a 90 day delay in the selloff, things have changed. That’s why it’s so important to be able to spot trends in the market so you are prepared to make your move if there is sudden shift in the market. Hertz has apparently made a deal with its creditors and will have until December 31st 2020 to sell off 182,521 cars. You can read the article here on Yahoo Finance.
Keep in mind that this deal still has to be approved by the Bankruptcy courts, so keep a close eye on the lanes and news channels so you can stay ahead of the curve. In my humble opinion, 182,521 cars introduced into the wholesale market over a 5 month period will not affect the wholesale market.
There is one thing that I think could cause a huge shift in automotive market. Congress not being able to come together and agree on a new stimulus package to keep the 30 million unemployed U.S. citizens afloat. With more states reverted back to closure, I don’t see the unemployed going back to work anytime soon.
My good friend, Scott Sadler of Stockwave, and I constantly keep each other informed of changes or trends we are seeing in the wholesale market and the competitive sets that could impact your buying decisions. I suggest everyone find a good team of colleagues you can team up with to bounce ideas off of and keep others informed if you spot something that could create a great buying signal in the market, or a stop sign to slow down.
Keeping all of this in mind, This should serve as a reminder to all of us that, intentional or not, dealers have all proven that you can do more with less and when it’s done right, it means really good things for the bottom line of your department and the dealership. You should never revert back to the stock more sell more strategy.
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