5 Ways To Solve High Inventory Problems
Managing the number of cars on your lot can be the difference between profits and pain.
Is it possible to have too much of a good thing?
When it comes to new vehicle inventory at dealerships, the answer is definitely “yes.”
Going into April, dealers had a jaw-dropping 4.2 million unsold new cars and trucks idling on their lots. And the huge overstock, along with soaring floorplan interest rates, are massively cutting into dealer profits.
Sean Pour, co-founder of nationwide car buying service SellMax, understands the pain.
“We often get calls from car dealers who are losing a lot of money because they have excess inventory,” he told Fair. “So, believe me, we know this is happening.”
So, how can you keep free of crippling overstock? Here are some tips:
Choose Inventory Wisely
Consumers are moving to pre-owned cars as the cost of new vehicles has skyrocketed, so prioritizing used vehicles should help keep inventory moving. After all, even a small gain on a used car sure beats the typical $200 loss on the sale of each new car.
Consultant Susanna Williams of Superior Honda of New Orleans said the key to mastering the used market starts with following buyer trends.
“Paying attention to the vehicles that consumers are interested in and stocking up on the right cars will help turn inventory more quickly,” Williams told Fair.
Of course, this means dealers have been clamoring to stock the SUVs and trucks dominating the market. But dealers turning to these popular behemoths to be the lynchpins of their used programs soon discover another lurking issue: lot space.
Lisa Copeland, founder and CEO of Cars Her Way, said skyrocketing real estate costs can be every bit the profit-killer as stocking the wrong cars.
“Dealers, depending on the size of inventory, can be seeing anywhere from a $25,000 to $100,000 plus-a-month increase in floor plan expense,” Copeland said.
And it may not pay to stock the behemoths anyway. The next generation of buyers are flocking toward sedans, with millennials overwhelmingly favoring smaller, more economical cars like the Honda Accord and Nissan Altima.
Resist Factory Pressure
It’s no secret that when it comes to inventory, OEMs have been known to play hardball with dealerships, including forcing auto sellers to stock a particular type of vehicle by threatening to withhold another, more popular model.
Williams advised resisting such pressure.
“When dealerships are pushed by factory reps to fill their lots, many dealerships won’t be able to sell them quickly enough,” Williams said.
True, the relationship between dealers and manufacturers is an important one. But always keep in mind that when sales underperform, you and your dealership are the ones left holding the bag.
Jump in the TV Ad Game
When buyers look to purchase a car, 86 percent of them research online before hitting the dealership. And when the Video Advertising Bureau studied the impact of TV ads on web views, they found 76 percent of automotive brands showed a direct correlation between TV spend and website traffic.
Robert Barrows, who represents dealership clients as President of R.M. Barrows, Inc. Advertising and Public Relations, stresses the importance of television ad purchases in driving sales.
“If you’re overstocked, the best way to start moving a lot more merchandise is to start advertising an overstocked sale on TV,” he said.
Stay Conservative
Scrambling to keep stock high when sales are sunny makes a lot of sense. As new car purchases continually rose in the past few years — and continued to climb between 2017 and 2018 — many dealerships kept their foot on the gas in stocking inventory, banking on a continuing rally.
But 2019 has so far brought a massive sales slump, with the first quarter notching the biggest decline in a decade — a jarring reminder to manage expectations and upside thinking. Even in the rosiest of sales days, it may be best to stay conservative, always keeping in mind there may be rainy days ahead.
Join Fair
Joining Fair is a great way to move your pre-owned inventory. When you become a Fair dealer, you’re able to attract new business by displaying your inventory to a growing tech-centric demographic — at no cost to you.
Fair customers conveniently find the monthly payment and flexible terms they’re looking for right on their phones. After they find the one they want and sign all requisite paperwork right in the app, the customer simply comes in to your dealership, picks up the keys and drives off.
Fair will wire your dealership the purchase price of the car. And because they can turn the car in whenever they want, it means more chances for deals going forward — all without your sales staff wasting valuable time closing transactions.
