Car Dealer Inventory Management: 10 Best Practices

April 28, 2019

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Car Dealer Inventory Management: 10 Best Practices

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Car dealer inventory management is a unique challenge. The sheer volume of vehicle makes and models can feel like an endless sea of options. Having an inventory management system in place can help dealerships increase profitability and decrease the chance of losing longtime customers due to a lack of choices. In this post, we’ll examine 10 best practices for car dealer inventory management and how you can start implementing them today.

Automotive Retail Inventory Management That Helps Your Customers Find the Right Fit

Gone are the days of dealership hopping in search of the perfect vehicle. Now, by the time consumers get to your lot, they’ve already done their research and are looking for something specific. According to recent reports, over 59% of consumers spend time researching a vehicle before ever setting foot in a dealership.5  You can have hundreds of vehicles for sale, but if you don’t have “the one” the sale is a loss. 

Is dealer inventory management costing you money? Or maximizing profit with every sale?

With the auto industry in a state of fluctuation, an effective automotive inventory strategy is more important than ever. A lot goes into automotive inventory beyond simply the number of vehicles. Maximizing profit comes from having efficient inventory management processes in place. Efficient inventory management processes aid in customer management, pulling in leads, and helping you improve per-vehicle margins.2  It’s a way of balancing the scales, no matter if sales are increasing or dealers are facing a slowdown.

10 Car Dealer Inventory Management Best Practices

Let’s explore best practices that can help you create an efficient and effective inventory management process. Think of it as a 10-point inspection for your auto dealer inventory management system.

1. Know Each Vehicle’s Market

Dealerships that move inventory don’t rely on gut instinct or personal preference. Optimizing inventory and increasing profit requires an understanding of each vehicle’s market.

Car buyers are doing their research online and narrowing the list of vehicles they may want to buy. Dealerships can use this consumer behavior to their advantage. Doing a Google keyword analysis can tell a dealership which vehicles are being the most searched online.

Online reports from CarStory and J.D. Power provide information on consumer preferences. As well as a dealership's own customer data. Auto dealer inventory management software solutions can help a dealership analyze sales trends. Using this information in comparison to what’s currently on their lot. Price points for different types of vehicles can also determine which vehicles are in demand.

There are tools that can tell you which vehicles are right for a market. But dealers must exercise restraint and not deviate from the data. Dealers must base decisions on current market conditions. This means performing market research regularly.

New car dealers may not be able to control which models a manufacturer produces in a given year. But there are other dealer stock management decisions that they can make to fit the market. These include trims, paint color, and upgrades. Knowing what consumers in your market want will also help you create effective vehicle descriptions. This often amounts to more cars sold, faster.

2. Adopt Time-Minded Approach to Vehicle Pricing

Dealers must be efficient when it comes to inventory management. This applies to pricing more so than many other aspects of the process.

Models that are less desirable in the market must be priced to sell fast so they don’t take up space in the lot for too long. Offering very favorable pricing is a more sound strategy than letting the car sit for months.

Taking a time-minded approach to vehicle pricing goes back to knowing your market. A dealer must understand what local customers are willing to pay. They must also know how comparable vehicles are priced at other area dealerships. Vehicles must be competitively priced if there’s any hope of moving inventory in a timely fashion. These days, the competition isn’t within the city limits. Consumers are comparing dealerships within a couple of hundred miles of their location. They are willing to go the distance if the price is right.

3. Price With Greater Transparency

Pricing isn’t the only aspect of moving inventory. But it’s a big component of transparency. Dealers that put in place a transparent pricing strategy tend to draw in more consumers. They also create more opportunities to make a sale.

Why? Trust almost always becomes a factor when a person is making a five or six-figure purchase. That’s why price transparency is so important for auto inventory management.

The Internet is another reason transparency is more important than ever. Pricing research is the #1 online activity performed by car shoppers.3 There are countless resources from Kelly Blue Book that provide pricing information online. Consumers are more knowledgeable about pricing factors than ever before. They’ll come to the dealership armed with that knowledge. It won’t escape them if a vehicle is overpriced.

You can improve pricing transparency by showing a price comparison with other dealerships and third-party websites. And don’t forget to put the price on the vehicle listing with all relevant incentives included.

4. Avoid Costly Mistakes

Having a vehicle inventory management system can help you avoid costly mistakes, especially when you’re sourcing and marketing. Here are a few ways established inventory management procedures help prevent mistakes:

  • Appraisal practice lowers the chance of overpaying or stocking the wrong vehicles right out the gate.
  • Inventory checklists and content guidelines provide assurance that listings are free of errors and are as detailed as possible. They include all the features and list them in order of importance. 
  • They emphasize selling aged inventory rather than new models with less depreciation. Inventory data is updated in a timely manner so that vehicles are brought to market sooner.

There’s one more important factor that helps dealers avoid easy mistakes…the inventory manager. This inventory manager plays a critical role in making sure procedures are followed consistently and promptly.

5. Find the Right Mix of Inventory

Variety is often the key to moving inventory at a dealership. It’s all about casting a wider net to catch more car buyers. 

Of course, to source the right mix of online car auction inventory, you first need to know each vehicle’s market. You also want to be mindful of what’s in demand for your customer base.

If you only sell sedans from the major U.S. automakers, you’re probably going to have aged inventory issues. Sedan sales are dropping in the U.S. with one exception—electric vehicles. It’s a perfect example of how a mix of dealership inventory can maximize profitability.

Focusing on one franchise is also an inventory issue, even if it's your own franchise. If you stock too many vehicles from one franchise, you’re isolating buyers that are ready to change brands. You also run the risk of used car sales cannibalizing new car sales of the same make and model.

Having a mix of vehicles makes car dealer inventory management software that much more important. Dealer management software allows dealers to track sales by make, model, and manufacturer. Essentially, it helps ensure you find the ideal inventory mix for your dealership.

6. Keep Inventory Fresh

Aged inventory is a problem for turning a profit. The longer an aged vehicle sits on the lot the larger the car wholesale loss. The goal is to create a used car inventory management system that moves aged vehicles fast.

To do this, dealers have to make inventory age a top management factor. It helps to create an aging policy that holds managers accountable. The more conservative the policy is the better.

The best practice is to hold 50% of aged inventory for a maximum of 30 days from the acquisition. All used vehicles should be sold within 45 days. If it doesn’t sell in that time it should be wholesaled. Doing so will keep depreciation under control. It will also encourage dealership managers to move the aged inventory. Not sure how to determine wholesale value? Check out our post on how to determine wholesale car value

Aged inventory has a story. And that’s something that should be shared in the merchandising of aged inventory online and in person. All the unique factors should be highlighted so that they can breathe new life into an old vehicle.

Vehicles are also as susceptible to trends as any other consumer good. Understanding the market of a vehicle and what’s selling in your area plays a critical role in inventory that’s fresh.

7. Stay on Top of Aged Inventory

Cars that languish on the lot are essentially stagnant money. Dealers have to stay on top of aged inventory if they want to avoid stalled sales.

Managers and salespeople can play an integral role in staying on top of aged inventory. How many times a vehicle has gone on a test drive and how many deals have been worked provide insight into the likelihood an aged unit can actually sell.

Another way to stay on top of aged inventory is to make small fixes when vehicles are reconditioned. Small investments to correct obvious issues will help decrease the time to sell. This is particularly true with used luxury vehicles.

8. Conduct Inventory Analysis

Dealers should always know what they have on the floor and in the lot. Regular inventory analysis should identify core inventory. It should also note how long inventory has been held.

Data that is gathered through inventory analysis can help a dealer fine-tune their resourcing. It reveals the turn cycle, when it’s best to get inventory, and a timeline for vehicle disposal. The analysis can also provide important insights on pricing within the market. This data is much easier to source when you have the right auto dealer inventory management software.

9. Invest in Automotive Inventory Management Systems

What is DMS (dealership management systems) for car dealers?

A DMS provides inventory management for a car dealer with customized tools and resources. These inventory management systems support processes that lead to faster vehicle turnaround time and improved ROI.

Old automobile inventory management software can be a huge obstacle. As noted above, time is money when you’re moving vehicles. Old technology can slow things down.

Auto inventory management software is becoming more integrated. Tools that sync with websites and CRM systems provide more comprehensive technology. They can make management easier across the board. As car searches increase online, integrated inventory management systems will become more beneficial.

Dealerships should look for mobile compatibility when upgrading their inventory management system. Several years ago, mobile Internet usage surpassed desktop usage.4 This trend isn’t changing anytime soon. Dealers and managers should be able to access their dealer management systems from anywhere.

10. Proper Inventory Sourcing

Sourcing is a key component of vehicle inventory management. Again, having a clear strategy is necessary for the greatest profitability. A dealership’s sourcing strategy should establish three things:

  1. How often (and where) wholesale vehicles are acquired
  2. Parameters for trade-in decisions 
  3. eMarketing efforts

Current market demand will also come into play. You can use past sales performance metrics to determine this factor.

Where to find inventory for the right price is always at the top of a dealer’s mind. Car inventory providers such as auctions have long been a popular way of sourcing wholesale used inventory.

How ACV Auctions Can Increase Your Car Dealer Inventory

ACV provides a full-service automotive marketplace that is fueled by innovative technology. And that includes our user-friendly online auctions for dealers in the automotive industry. Why should dealers use online auctions? Car auctions can help diversify your inventory. And help you source the vehicles your consumers want to buy.

ACV Auctions is making it an even more profitable option by solving two problems. Efficiency and transparency. ACV inspectors come out to the dealership to create in-depth condition reports. These reports are more thorough than the industry standard. The vehicle history reports are used in real-time, online auto auctions. And they eliminate the need for costly, time-consuming physical auctions. Learn more about how to get into dealer auctions.

You should approach trade-ins with the same level of care. Both condition and consumer demand must be weighed before an offer is made. Even if a vehicle is in good condition, if there’s little market demand, there’s a chance it will become aged and end up being wholesaled.

Interested in online car auctions to increase your car dealer inventory? Start by registering for a free ACV Auctions account. We look forward to working with you! 

Sources

  1. Workflow 360® “Importance of Inventory Management System for Automotive Industry” Retrieved May 2022 from https://wfs360.com/blog/importance-of-inventory-management-system-for-automotive-industry/
  2. Workflow 360® “What are the Pros and Cons of the Dealer Management System?” Retrieved May 2022 from https://wfs360.com/blog/what-are-the-pros-and-cons-of-the-dealer-management-system/
  3. Consumer Reports “Car Buying & Pricing” Retrieved May 2022 from https://www.consumerreports.org/buying-a-car/car-buying-and-pricing/
  4. TechCrunch+. “Mobile internet use passes desktop for the first time, study finds” Retrieved May 2022 from https://techcrunch.com/2016/11/01/mobile-internet-use-passes-desktop-for-the-first-time-study-finds/
  5. AutoRemarketing.59% of car buyers do online research … Plenty of new stats like that are available. Retrieved May 2022 from https://www.autoremarketing.com/trends/59-percent-car-buyers-do-online-research-plenty-new-stats-available#:~:text=%E2%80%94Consumers%20will%20spend%20an%20average,vehicle%20they%20will%20potentially%20buy.