While it was previously common for dealers to count on a 90- or 60-day turn on acquisitions, one consultant has advocated for a far more aggressive inventory strategy that involves monitoring data to boost turn rates, ultimately resulting in better profitability in the long term.
Driving the News: In his time consulting for dealerships and auto tech firms across the U.S., David Spisak, CEO of Disruptive Growth Solutions, LLC, has uncovered a crucial, albeit polarizing, way to manage used-car inventory. During Monday’s Daily Dealer Live episode, Spisak told hosts Sam D’Arc and Uli de’Martino about his aggressive acquisition strategy, and why it’s important to stay disciplined on turn rates and ideal inventories.
“If my car doesn't have significant VDPs or write-ups within 21 days, the car is out,” Spisak said. “If the car is not popular or in demand—if it's not a car people want to buy in 21 days—why do we keep thinking it's going to become popular in 30 or 45?”
Zooming in: After that point, he says, dealers should cut the vehicles down to market pricing or otherwise get rid of them. This makes room for more profitable additions to the lot, and by keeping to this strategy, dealers ensure that only profitable models are coming through.
Between the lines: While dealers might argue that they can’t afford to take these losses,
Spisak highlights how a company like CarMax is so disciplined in utilizing its data to “have an exit strategy day one” for any given car.
CarMax last year wholesaled nearly 600,000 vehicles, he explains, and it’s because their data showed they wouldn’t offer a profitable outcome within 30 days.
Bottom line: To implement aggressive inventory turnover, dealers must base their stock on actual market search data rather than what they're currently selling, maintain strict discipline to those data-driven inventory targets, and price vehicles to move quickly.
“You’ll find that most top-performing used car places never put more than two grand in a car. Why? They have figured out that if you want to maximize gross, you don’t do it one deal at a time… You do it by maximizing turn,” said Spisak.
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