Work Smarter When Selecting Inventory (4 Tips)

Last month we looked at the decision-making process for advertising in dealerships. This month we turn to the inventory decision-making process, which is often a problem area in the dealerships I visit.

There are two major problems:

Finding vehicles you can sell quickly for a profit.
Avoiding vehicles sitting on your lot for months collecting dust.

Selecting the correct inventory isn’t just a matter of preference; dealers have a lot of money tied up in inventory, often millions of dollars, depending on the size of the dealership. Since most dealerships floorplan their inventory, every additional day a vehicle sits on the lot unsold is one more day you have to pay the finance expense.

In my experience, I’ve seen many sales managers choose their inventory based on gut instinct, on what they think will sell, instead of on hard data. When this happens, they’re really just guessing, and those guesses are almost always the reason for excessive unsold inventory.

If that sounds too much like the process at your dealership, here are four things you can do to better match your inventory with real demand in your market:

1. Use Historical Data

Your DMS and your manufacturer are both goldmines of information about what sells in your specific market. It’s usually not hard to find an inventory age report telling you what models and equipment packages sell quickly for the highest profits. Pull these reports regularly.

2. Define an Inventory Selection Process (and Stick to It)

Every sales department needs a documented process for how to make inventory purchasing decisions. It should include a regular review of the reports mentioned above, along with the criteria important to your specific dealership.

3. Analyze the Market Data from Beyond Your Dealership

A tool like Used Vehicle Management will give you a window into what’s happening outside your specific dealership. It will automatically analyze your sales and market history and show you what’s been selling in your area. It will also make recommendations for what vehicles to take in on trade, how much to offer for them, and what to purchase at auction.

4. Let the Data Lead You

Whatever your process, your management team should be using data, not just gut feeling, to make purchasing decisions. You need to look at the numbers, analyze the trends, and use that information as the primary driver for your inventory decisions.

Conclusion

As I was writing this article, I couldn’t help but notice how similar the ideas here are to last month’s article about advertising. Whether I’m talking to a dealership about advertising choices or about the inventory on their lot, too often the story is the same. They’re making both decisions based mostly on gut instinct.

Bottom line, your managers (or you, if you are the one making the decisions) need to be committed to a data-driven approach. If you’ve got aged inventory cluttering your lot, data-driven decisions are the best way to rid yourself of it.

Next month: We’ll look at another problem area for many dealerships: the hiring and promotion process.

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