Used Vehicle Inventory History Fails as Foundation for Dealer Sales Strategy

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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