Used Vehicle Inventory History Fails as Foundation for Dealer Sales Strategy

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By Dale Pollak

From time to time, I’m asked to explain why I don’t believe that a dealer’s his­tory of used vehi­cle inven­tory sales is a reli­able guide to deter­mine the cars to acquire and sell in the cur­rent market.

I’ll often begin my expla­na­tion of used vehi­cle inven­tory man­age­ment with an impor­tant caveat: I do not dis­miss the value of his­tory to pro­vide clues into the present mar­ket. There are some vehi­cles in some mar­kets that can rightly be regarded as “old reliables”—cars that, time and again, prove to be prof­itable, retail win­ners for a dealer.

Sim­i­larly, some deal­ers have carved effec­tive mar­ket niches for select types of vehicles/segments. In such instances, past sales his­tory can help these deal­ers con­tinue to feed a mar­ket niche.

Beyond these sce­nar­ios, how­ever, I believe that deal­ers who rely on his­tory to guide their choices for acquir­ing and retail­ing used vehi­cles are unnec­es­sar­ily lim­it­ing their retail­ing and prof­itabil­ity potential.

Here are three rea­sons why his­tory is a prob­lem­atic guide for a dealer’s used vehi­cle inven­tory strategy:

1. His­tory reflects biases. Most deal­ers develop their sense of the best cars for their deal­er­ship through brand-biased eyes. That is, they have his­tor­i­cally skewed their inven­to­ries to reflect their fran­chised brand. There­fore, the sales his­to­ries that flow from this strat­egy rarely rep­re­sent the full raft of retail­ing oppor­tu­ni­ties in a given mar­ket. In some cases, deal­ers may have tested makes/models beyond their fran­chise brand. But such exper­i­ments are often ran­dom, reflect­ing the best guesses and biases of a used vehi­cle man­ager rather than cur­rent mar­ket data.

2. His­tory lim­its oppor­tu­nity. When deal­ers rely on his­tory to guide their used vehi­cle strat­egy, they often end up with a “go with what we know” acqui­si­tion mind­set. In these deal­er­ships, used vehi­cle man­agers shy away from cars that don’t fit the his­tor­i­cal tem­plate and, as a result, they miss new oppor­tu­ni­ties. At best, this history-to-habit dynamic merely lim­its a dealer’s poten­tial for growth in used vehi­cles; at worst, it spawns repeat mis­takes that man­i­fest through per­sis­tent whole­sale losses.

3. His­tory may not be rel­e­vant. Every dealer would agree that today’s used vehi­cle mar­ket is far more volatile than it has ever been—and many signs sug­gest this is the “new norm.” In this envi­ron­ment, the past increas­ingly bears lit­tle resem­blance to the present, par­tic­u­larly as con­sumer demand, sup­ply con­straints and com­pet­i­tive fac­tors con­tin­u­ally change. This ever-evolving sea makes a dealer’s sales his­tory less rel­e­vant for effec­tively com­pet­ing in today’s mar­ket. This is why I believe real-time mar­ket data, which con­stantly mea­sures shift­ing mar­ket sup­ply and demand dynam­ics, offers a bet­ter guide for acquir­ing and retail­ing used vehicles.

As I noted above, I’m not say­ing that deal­ers should com­pletely dis­re­gard his­tory in their used vehi­cle inven­tory strate­gies. His­tory matters—but only to the point where it meshes with the cur­rent market.

Dale Pol­lak, pres­i­dent and founder of vAuto, Inc, can be reached at dpollak@vauto.com or through his blog at Dale Pollak.com.

 

 

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