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How Bad Buys Prevent Dealers from Combatting Margin Compression

How Bad Buys Prevent Dealers from Combatting Margin Compression

When you think about how much third party data is available about used cars and the used car market, it’s no wonder there is a disconnect between what an average dealer’s ability to consume that information is, and how they use that information for stocking their inventory. And this disconnect does have consequences. It reduces dealership profit.

In this video, dealership operations veteran David Long talks about how bad buys keep dealers from making the margins that we are constantly talking as of late about eroding.

“The marketplace is the indicator of what the dealer should stock,” says Long. But too often dealers stock what they can get. Inventory can be so hard to get and if you have a stocking demand where you want to have 12 turns and you're selling 100 cars a month, you're going to scrap and scrape to get 200 cars in inventory.”

“The problem with this mindset,” Long explains, “is it may not be the right hundred cars, especially if the data were using isn't consistent to what the markets demand is.”

Forced Stocking Leads to Fire Sales

What typically happens in this case, which David explains in the video he sees all over the country, is the dealer will have a stocking level they have to hit and they'll force their used car manager or team to hit that number, but they won't use the supporting data to fill the inventory with what's actually going to sell.

Long says that when this happens, dealers eventually are forced to do a fire sale.

“If you look at transactional data of where dealers buy their inventory compared to where they're selling it, and eliminate the “bad buys,” these dealers would have more margin and thus they would make more money.”

Eliminate "Bad Buys"

Do you experience “bad buys” and low profit margins at your dealership? If so, take a moment now to talk with us. At VAN we assist dealers with vehicle acquisition by connecting them with private sellers in their marketplace. We have the data to show what vehicles are out there, and the tools and resources to help you obtain them.

About this Video and VAN University

The excerpt was taken from one of our monthly VAN University Best Practices and Training Webinars.