Auto sales have revved up during the first six months of the year for most auto dealers. Dealer profits increased considerably in the first quarter compared to prior years. In fact, in 2012, some dealers saw their best first quarter in history. The second quarter cooled off slightly for some dealerships in the new and used markets, but the period ended strong with new vehicle sales leading the way in June. Most experts are forecasting new vehicle sales nationwide will reach the 14 million mark this year. Dealers are optimistic that 2012 will finish on a high note and will rank as one of the best years ever.
As we drive into the third quarter, now is the ideal time to focus on new inventory management. Based on sales from second quarter, many dealers are maintaining a higher than average supply of vehicles than in recent years. While some dealers are anxiously awaiting car shipments from the manufacturer, most dealers are carrying inventory. But, is it the right mix? It is important for your general manager or new vehicle manager to stay on top of this as the year ends. As usual, units in high demand are hard to come by and it seems like you never receive your fair share of the allocation. At the same time, the slow-moving units sit on your lot.
Recent industry publications indicate that manufacturers like GM and Chrysler may over-produce in the fall and will need to offer larger rebates and incentives in order to move surplus inventory late in the year. Let’s hope this is not the case.
For used vehicles, prices at auction seem to have finally reached a plateau. Prices remain high, but at least they have leveled off, and in certain vehicle classes have dropped slightly. Dealers need to closely monitor their aged inventory and develop an internal system for monthly markdowns on units as they age. Many dealers use an incremental system of markdowns, lowering the price every 30, 45, 60, 75 or 90 days. It is also important to note that in most cases any retail sale is better than resorting to selling at auction. By retailing it, you gain a customer and the chance to recoup any loss on the front end with income from your F & I department. You also avoid the costs of bringing it back to auction.
Several software packages such as ADP and Reynolds have an add-on feature called “Used Vehicle Analysis” to break down your used vehicle sales on a monthly, quarterly or annual basis. For your used vehicle manager, it is important to note and track the following:
- Highest grossing units
- Fastest turning units
- Off-brand unit sales
- Units with negative grosses without packs
Dealers typically experience higher sales on used units that are associated with their new car manufacturer, but you would be wise to focus on off-brand unit sales. For off-brand used vehicle sales, you should track what is being sold around you and in what vehicle segments. Several publications you can subscribe to such as Dominion Cross-Sell Reports will give you this information for your area. For example, in Northeast Wisconsin, a mid-sized car was the number one vehicle segment while the Ford F-150 was the highest-selling vehicle unit.
By focusing on inventory management and tracking sales in your area, you should be able to rev up your sales and increase profits.
For additional information and dealership consulting, contact Jason Kiehnau at 920-455-4103 or jason.kiehnau@schencksc.com.
Jason Kiehnau, CPA, is a manager and co-leader of Schenck’s Dealership Industry team. Jake has more than 10 years of public accounting experience, and also previously served as general manager/controller for an import and domestic auto dealership.