Nine times out of 10, a core vehicle will sell for a higher price than its going market price. Two industry veterans provide a three-step process for stocking your lot with core inventory.
By Robert Cowan and Sandy Davis
We know that turning and burning through inventory won’t get you to your profit goals, because successfully managing inventory requires a delicate balance between cost of goods, profitability, and, yes, how quickly you can sell it. We call it the Ideal Inventory Model™, an approach designed to help you stock core inventory — or vehicles that deliver above-average grosses in below-average turn times.
There are many ways to determine your dealership’s inventory, and there are plenty of software tools that can help. In this article, we’ll walk through a proven process for stocking core vehicles.
Step 1: Determine Your Core
The reason you need to identify your dealership’s core inventory is, nine times out of 10, a core vehicle will sell for a higher price than what it’s going for in the market. Nonluxury dealerships, both import and domestic, generally operate best when core vehicles account for 45% to 55% of their preowned inventory.
The Ideal Inventory Model (IIM) is the backbone of Inventory+ and how we determine core at DealerSocket. It looks at your sales history to determine if a vehicle would be a profit driver at your unique dealership, and not just a market performer. Each vehicle will receive a score, or TrueScore, on how it performs at your dealership or in your market. If you’ve never sold a car similar to that, predictive algorithms will pull similar vehicle transactions to help you make a data-driven decision.
It’s important to not rely solely on live market data because other dealers in the same region are getting the same recommendations, which increases wholesale costs for the same vehicle. That often leads to those profit-squeezing, race-to-the-bottom pricing wars. The advantage to using Inventory+ is its algorithms are constantly updating as transaction data flows in daily. That allows the tool to look for areas of improvement when developing your store’s customizable buy/sell list, which the system links to matching available vehicles (such as missed appraisals, in group trades, or auctions).
To determine your core, we focus on profit per day – or vehicles that drive you profit while turning within your desired time frame. It’s important to be able to identify if a vehicle is core or not to your dealership at all stages within a vehicle lifecycle: acquisition to disposition.
Step 2: Acquire Profit Drivers
When acquiring a car, Inventory+ will let you know right away if it’s a profit driver for your lot with TrueScore. Each car on your lot has two TrueScore metrics: one for how the vehicle will perform at your dealership, and one for how that vehicle performs in the market. Both scores are measured on a five-point scale.
Your dealership score is based on your store’s transactional history, while your market score indicates how well the vehicle performs in your local market. The reason why that’s important is some vehicles may perform differently at your store than in your local market, while others might not be profit drivers at your dealership but are high market performers. Your market score is also important when you have no transactional history on a particular unit.
Now, an average car will have a score of about 2.5, while a high-performer will have a score of three or higher. TrueScore also provides the vehicle’s profit per day, average turn time, how it ranks against similar vehicles your dealership sold in the last 30 days, average sales price compared to the market, and much more.
We recommend sourcing vehicles from trade ins, missed appraisals that slipped through the cracks, in group trades, or auctions. While acquiring cars from these sources, you’ll want to make sure your dealership’s TrueScore is at least a 2.5.
When working an appraisal, simply plug in the vehicle identification number into Inventory+’s Single Page Appraisal. The system will immediately extract transaction data from the DMS to provide stocking and pricing recommendations, or the vehicle’s TrueScore. Based on this score, you’ll immediately know if the car will be a profit driver, or loss to your dealership.
As you look to buy cars, refer to your buy/sell list. The stocking recommendations are the result of our Ideal Inventory Model, so you’ll see exactly which cars you need to stock to drive profit per day. You can filter by how many vehicles you already have in stock, filter by your dealership score, market score, cost, profit opportunity, and more. Once you know which cars to purchase, you can source those vehicles directly through Inventory+.
Step 3: Know Your Exit Strategy
You should determine your exit strategy in two places: as soon as a car is in the appraisal process and during reviews of existing inventory (every 10 or so days) to determine any vehicles that have yet to turn.
Remember, as you’re appraising a car, if it’s TrueScore is under 2.5, it’s probably best to get rid of that car before trying your hand at selling it. If a trade in will not be profitable at your dealership, make sure to be transparent and manage a customers expectations. On an ongoing basis, you should use your inventory manager tool to review how your existing inventory is performing. It’s a good idea to pull up the vehicle’s market data every 10 days after it has been traded to see how it differs from the data used at the time of the appraisal. This step will tell you if you need to adjust your pricing up or down.
Your buy/sell will also recommend vehicles to sell, based on unique dealerships performance. If you determine a vehicle needs to be disposed, you can easily trade within your group or launch it to auction from Inventory+.
Finding inventory core to your unique dealership is important. It will allow you to sell vehicles profitably, while maintaining turn. We recommend finding a solution that helps you aggregate your dealerships performance so you’re not relying solely on instinct or market performers to stock your lot.
Robert Cowan serves as a Senior Customer Success Manager for DealerSocket and has been in the automotive industry for 42 years and consulting with Inventory+ for 14 years. Sandy Davis has been in the automotive industry for 22 years and serves as one of the company’s Strategic Growth Managers.