Three Keys to Managing Your New Car Inventory Through a Pandemic

New Car Inventory Management fundamentally changed during the Spring of 2020 as the global pandemic hit and auto manufacturing stalled for nearly three months. Little did we know at the time that the industry would shift from a “PUSH” to “PULL” inventory system almost overnight.

The move from Push to Pull has been a blessing for New Car Dealers. Consumer demand has been strong since early summer and inventories have remained tight. Both grosses and sell through rates have increased dramatically. Not only that, according to NADA’s Dealer Financial Statement Profile, the floor plan line on the financial statement has flipped from an $85,000 expense in 2019 to a projected $60,000 profit in 2020. The CEO from Group One recently said, “the pandemic is the best thing that ever happened to the new car business.”

With this much tailwind at Dealer’s backs, it’s easy to understand why some Dealers have taken their eye off the ball. vAuto’s inventory data shows that the percentage of aged inventory (+120 days) has not materially changed since COVID19 emerged. Which is to say, most Dealers have not enhanced the oversight of their new vehicle inventory.

Now more than ever, Dealers should manage their new car inventories with increased focus and greater attention on maximizing their monthly allocations.

Here are 3 tell-tale signs you are managing inventory wisely during this global pandemic:

1. Look Bigger Than You Are Online. Almost every brand has a few models which are in tight supply and hard to get. Smart Dealers have created a “hack” for the OEM systems by listing incoming pipeline units for sale on their website before the actual vehicles arrive on the lot. This allows the Dealer to inflate the size of their online inventory which will attract more shoppers and generate more pre-sold units. Which in turn, accelerates their turn and earn.
   
2. Maintain a Low Average Days in Stock.The top 10 percent of vAuto Dealers are currently averaging 40 days or less on lot. For vAuto Lexus Dealers the number is 25 days, which is incredible. The only way a Dealer can maintain days on lot this low is by never letting an aged piece of inventory go unmanaged. All too often, Dealers rely on the “strategy of hope” vs “strategic thinking” when it comes to their oldest units. The painful reality is that those aged units eat up more than just floorplan expense – they also eat up the ability to earn more units in the monthly allocation.
   
3. Awareness of Lurking Dead Stock.OEMs are well known for building their fair share of slower moving/low volume combinations also known as Dead Stock. In a study earlier this year, JD Power noted that 78 percent of the model combinations across the industry only generated 25% of the sales. It’s critically important to recognize these slower moving combinations the day they arrive on your lot and immediately deploy an aggressive pricing and promotion formula to move them. Consumer’s don’t gravitate to Dead Stock on their own. Dealers must be proactive to move it.
   

Today, US Auto manufacturing has resumed to 80-90% of normal production output across most plants. Analysts believe these new lower production volumes will remain the norm in the short term. The challenge of course is the industry is still missing 1,000,000 units due to the three-months plants were idle. It’s going to take a long time to replenish inventory to pre-pandemic levels at 80-90% of normal production especially if we have continued solid retail sales.

In the meantime, The Race for Inventory is in full gear. Dealers who are best at maximizing their allocations will be rewarded with the biggest slice of their OEM’s production. In this current environment where vehicles are being “pulled off the shelf” vs. “pushed onto consumers” – having a full shelf is the best recipe for success.