|
14th June 2010 Wake up to stock disposal policies from day 1 European dealers (and some in the UK) really need to face up to stock liquidations policies. Let’s consider why such policies must be encouraged, and look at policies that will ensure used vehicle stock no longer goes overage. As a general rule, it’s an industry practice that used vehicle stock should be liquidated (wholesaled / traded off dealer inventory) within 90-days. However, let’s assumes the term “overage” describes a vehicle that’s been in stock so long it’s unlikely to return a profit. It’s worth noting that it’s not always the right assumption to enforce a typical 90-day stock liquidation policy. In some cases 60 days maybe better or perhaps even 30. Nearly new vehicles that depreciate quicker, vehicles that are slightly unusual in specification or just outside a dealer’s typical stock profile may qualify for a lower stock holding period. Why should we encourage liquidation policies? First, consider the impact on business if a dealer allows used vehicle stock to go overage. In general, sales departments are allocated an amount of working capital to invest in used vehicle stock. If capital becomes tied up in overage stock, dealers will have less “cash” available to bid competitively for new vehicle part exchanges and this will impact the dealer’s new vehicle sales performance. Holding used vehicle stock is expensive. With interest charges at, for example 6%, a vehicle valued at €10,000 will cost around €1.64 for each day it’s in stock. At day 90-days this becomes €147. Furthermore, vehicles devalue and will need to be written down (or at least they should be written down). Assuming average depreciation is about 2.5% per month a vehicle valued at €10,000 will have depreciated by €750 over 90 days. The total cost of holding this vehicle for three months is €987 (147+750). Now add reconditioning, typically €400 it becomes clear that any potential margin has long gone. Keeping this vehicle in stock any longer simply becomes a damage limitation exercise; an exercise that blocks a display bay and restricts any potential profit from fresh stock. One more issue, sales consultants are “bored” with the car now. The vehicle probably doesn’t start and may well have been damaged while on display requiring further investment. So what’s the solution? Stock liquidation policies should be about adopting a “disposal form day 1” policy rather than a “90 liquidation policy”. The following section outlines one such policy. Day 0 – 3 Vehicles should be prepared and on displayed within 3 days. It must be transferred to used vehicle stock at the correct value, the wholesale value. Its poor accounting to purchase a used vehicle at a high price in part exchange for a new vehicle and not move the profit from the new vehicle to correctly value the used vehicle. . Day 4 – 40 For two weeks the vehicle should be priced with the maximum margin possible. The internet makes it easy to check local market prices. At the end of the second week the price should be reduced to a more realistic market price and a further reduction should follow after the next two weeks. Day 41 –60 It’s time to re-appraise and completely re-clean the vehicle (not just a wash) and drop the price further. Drive the vehicle to identify faults that my have put off potential buyers. It’s a good idea to keep a log of test-drives; after 5 or 6 customers have driven the vehicle and not purchased it something must be wrong. Day 61 – 75 The margin should be reduced again. If sales consultants are paid commission then they should receive a fixed fee that sufficiently motivates them to sell the vehicle. Again, the vehicle should be re-appraised, re-cleaned and re-checked for faults. Day 76 – 85 Re-price it again, this time at the purchase price. Bids should be invited from trade contacts. Never move it to another site within the group and start the aging process again and don’ give the vehicle to the parts manager as his company car! Day 86 – 90 Reduce the price again, perhaps in line with those trade offers. Advertise the vehicle as a special, it’s even worth selling it at a loss; at least the dealer has aftersales opportunities and profit potential through finance & accessory sales. Day 90 Vehicle must be sold to the trade at what ever cost can be realized. Don’t leave it in stock for just one more weekend – get it gone. At AMS we have loads of ideas on how to clear overage and overvalued used car stock. Contact us and together well clear the forecourt! Click here to go back. |
 |
|
May 2012 March 2012 October 2011 September 2011 August 2011
Classifieds are top sites for used cars buyers Click here to read more... June 2011 #2 Internet takes 3 % of UK car sales Click here to read more... June 2011 Value of Certification Click here to read more... Treatment Beats Prices for New Vehicle Buyers in US Study
Consumer Feedback on Key Questions Facing the UK Industry |
 |
      |
