First Pencil: The Core Was Never Rotten

February 14, 2020

As the competition goes from trading stocks to precious metals to undo the race to the bottom it created, Inventory+ reminds all that it has always been about profit time.

By Gregory Arroyo

I was fooled, at least during my days covering the F&I trade for an industry publication. And I was reminded of that on Jan. 27. That’s when Automotive News published an article on Dale Pollak’s “new truth of used-car profitability.”

My excuse is I covered F&I, which meant I was limited to “drive-by” reporting when it came to the inventory-management space. What I needed was a connection, and, well, the credit crisis that preceded the Great Recession of 2009 and its impact on inventory-management strategies provided just that. That led to this December 2009 article: Stock Up/Stock Down.

The piece quotes the two leading voices in the inventory space at the time: Pollak and the team at Inventory+. Both were leading the charge in turning inventory-management solutions into pricing tools. Inventory+, according to my sources, was the choice of many of the industry’s big dealer groups, while Pollak was the newcomer. And, yes, he was making a lot of noise at the time.

I remember the blog he wrote in May 2008 (The Core is Rotten), where he bashed Inventory+ and the Ideal Inventory Model that serves as its foundation. So you can imagine my reaction when I saw the video Dale posted in late 2018, the one in which he semi-admits that maybe he was wrong. And you can imagine my reaction when he doubled-downed in that recent Automotive News article, blaming dealers for not paying to get his fix for a problem his software created.

What troubles me is my brethren on the media side have decided to let Mr. Pollak off the hook, allowing him to pin margin compression on some “dramatic turn” in the spring of 2016.

Interestingly, Dale rolled out Stockwave in March 2016, but, as you guessed it, his press release and Automotive News failed to mention that. Instead, Dale uses both platforms to tell dealers to adopt his new software “if they want to be profitable.”

Well, Dale, I’m not sure your customers ever fully embraced your now-debunked theory. “I’d never use [vAuto] the way Dale Pollak … recommends you use it,” wrote Jim Ziegler in a July 2015 column in F&I and Showroom magazine. “I suggest using it as a buying and selling guide, but not a pricing guide. I just believe every used car should have a chance to make a decent profit.”

Now, Pollak has gone from managing inventory like trading stocks to managing it like trading precious metals. And according to his team’s analysis, dealers wrongly managed their best investments, their platinum cars, like their worst investments, and vice-versa. So, the trick is to hold onto those profit drivers and rid your lots of those bronze cars.

In other words, find your core inventory.

So, how will you determine your bronze and platinum vehicles? Well, Dale and his team have gone and developed a new secret algorithm that weighs three main factors — cost of goods being one of them. I singled out that factor because Dale never mentioned cost of goods before, but the Inventory+ rep I spoke to for my 2009 article did: “Simply turning vehicles and selling them quickly is not the answer, because it’s a balance between cost of goods, profitability, and how quickly you can sell it.”

He then added this: “The internet is an incredibly powerful and wonderful thing, but it can also be a wasteland of information.”

See, like Pollak’s software, Inventory+ does show users how competitively priced the market is on a specific vehicle based on how other dealers are advertising that vehicle or a similar vehicle online. But we take it a step further by displaying a market’s actual transactional data. That means the dealer doesn’t have to wonder if the price advertised online is outdated because the vehicle was sent to auction.

What really separates Inventory+ is our algorithm (yes, we have one, too) analyzes a dealer’s transactional history — about 90 days’ worth — to determine the dealership’s core inventory, or vehicles that deliver above-average grosses in below-average turn times.

So, we base our recommendations on your dealership’s unique DNA. The reason that’s important is relying on market data alone — like Pollak’s solution does — means other dealers in the same region are getting the same recommendations, which increases wholesale costs for the same vehicle (I’m sure Cox loves that). That leads to those profit-squeezing, race-to-the-bottom pricing wars. Sound familiar?

And by analyzing your historical transactional data, Inventory+ tells you what your customers are buying — not what your competitors’ customers are buying 25 miles down the road. And if you do well on a particular vehicle, there’s no reason to get down in the gutter with every other dealership engaged in a pricing war. You simply need to differentiate your profit driver with the photos you take and the description you write.

See, Dale, it’s always been “profit time” at DealerSocket.