Don’t Sleep on Your Inventory Nightmare

by Adam Rapp

Are we headed for the nightmare scenario? Cases are starting to spike again which means plants and factories will be shutting down. As a result, already thin inventory accessibility will be limited, if not altogether unavailable. With early July being the traditional catalyst for a strong summer selling season, this is unsettling news to say the least. With new production potentially halted through the rest of the summer, dealers across the country are scrambling for alternative options. Sure, the liquidation of Hertz’s fleet following the company’s bankruptcy will help the used market. However, where does this leave the consumers are insistent on purchasing a new vehicle? Moving forward, dealers have some work to do.

Regardless of current circumstances, new car inventory management has long been a sore subject for many dealerships. There is often a carelessness associated with allocating and maintaining salable vehicles that must be resolved as we move into the new normal. Inventory options are limited, especially in the face of potentially abrupt plant closures. While this issue poses a conundrum, there is a still lesson to be learned and time to correct your path. What do we really need in terms of new inventory? Are we calculating properly, managing correctly, and receiving the right allocations?

During a recent Dealer News Today podcast, Dave and Andy spoke with Senior Director of New Car Solutions at vAuto,  Brian Finkelmeyer. Back in May, Finkelmeyer wrote a stellar piece on the new inventory dilemma titled New Inventory Roulette. The article details the bullish and bearish dealer attitudes regarding their new inventory predicament. As for Finkelmeyer, the Cox Executive believes that the solution to the shortage boils down to proper management. “Our country and world face the most challenging crisis of the past hundred years. Yet new cars sales are only down seven percent from a year ago”, writes Finkelmeyer. While this statistic presents a light at the end of the tunnel, we are nowhere near out of the woods yet. According to Finkelmeyer, a return to any semblance of normalcy will come no sooner than next year. “For 2020, North American production is forecasted to be down 3.5 million units which is a pretty significant number”, says Finkelmeyer. Considering these projections, now is the time, more than ever for dealers to genuinely reevaluate and strengthen their new inventory management skills.

A recent study conducted by J.D. Power should be raising eyebrows. The company found that only twelve percent of model combinations represent seventy five percent of sales at the dealership. The takeaway here, according to Finkelmeyer, is that dealers are not properly allocated (or allocating) new inventory. “There needs to be a real increased focus and attention on having the appropriate mix and having this dialed in at the model trim color level”, says Finkelmeyer. Before the new normal, there might have been a little more flexibility and room for errors in allocation. Now, according to Finkelmeyer, there is little spare change left for unnecessary inventory. Most importantly, dealers must accentuate their allocation requests for fast moving inventory in order to overcome new vehicle shortages.

This might sound like rudimentary advice, but the ability to properly isolate and manage new inventory needs is critical to your dealership’s success. This starts with genuinely staying up to speed on prior sales reports to garner a better sense of direction for future allocation request. These reports will give you an idea of which vehicles are sold more frequently than others. From there, you can moderate less desirable inventory and request exactly what is needed. By doing so, you will diminish the chance for error or aging lot vehicles. Something else to avoid is the quick trend trap, which can lead to poor decisions being made from insufficient data. You’ll need more than just anecdotal observations to build a proper system. Trust your sales reports, factor in proper amounts of time, and focus on real data to generate the accuracy you’ll need to achieve.

In terms of management, your dealership must absolutely employ a strong work ethic. In a survey conducted a few years ago by vAuto, it was discovered that dealers spend an average of two hours a month managing new inventory. During a recent presentation, Finkelmeyer presented this statistic to a dealer group. Much to his surprise, one disagreed with his numbers. “That’s a complete exaggeration of how much time gets spent managing new car inventory. It’s nowhere near two hours”, he said. Finkelmeyer really chalks the lackluster approach up to a “defeatist mentality”. Having upwards of eight million dollars devoted squarely to new inventory, the task of managing such a large fleet can be overwhelming. This might be true, but doesn’t qualify as an excuse to take your foot off the gas.

According to Finkelmeyer, new inventory managers are able to get away with more errors because it rarely affects their pay plans. With no potential consequences, this often means that poor performance is essentially permitted. When control is handed over to an ill-equipped manager, a dealership’s new and salable inventory is likely to greatly suffer. The effects of mismanagement can range from missing keys to empty gas tanks and dirty vehicles. Ironically, it is the used inventory that tends to be better cared for and properly administered. Finkelmeyer believes this is due to the correlation between aging inventory and low gross commissions. “They (used inventory managers) have been trained by their pay plan to pay closer attention to those cars that have been sitting out on the lot because they know it’s going to affect their pay plan”, says Finkelmeyer. Needless to say, this imbalance should likely be addressed as we continue moving forward. Finkelmeyer is of the mind that both desk and inventory managers should be paid based on how much floor plan profit they make. “We are now getting into someone’s paycheck to drive that person’s behavior”, says Finkelmeyer. More importantly, this strategy will reduce the existence of aged inventory in your dealership.

Whether you are bullish or bearish regarding the pandemic’s effect on summer sales, proper inventory management should now be at the forefront of your mind. It is never acceptable to let your inventory suffer, as this will directly impact your sales and reputation as a customer-focused operation. As more potential buyers than ever are increasingly skittish about the totality of their experience, dealers must be assured that their management team, inventory practices, and customer service methods continue to encourage consumers to engage with them and not be driven to shop elsewhere.