The current climate, with car buyers watching every penny, lengthy lead times for new cars the norm, and increasing stocking and operating costs, calls for a highly focused used car operation with the management of days in stock at the core.
Dealers keeping a closer eye on matching stock to their customer base, pricing according to market and turning stock inventory faster will maintain market share and profitability, making a full understanding of days in stock and cost compared to profitability a critical component of the used car strategy.
At Autofinity, we’ve found dealer groups applying variable parameters when calculating days in stock, which in turn determines cost and profitability calculations. For example, does the clock start ticking the day a vehicle is financially acquired or the day it arrives on site. And have dealerships really got the capability to accurately track all cars from acquisition to sale?
The three key components when calculating the cost of stocking a vehicle are depreciation and reduction in margin; stock funding; and marketing. Cap calculated the cost in 2015 at £5.95 in lost profit daily up to 45 days but with the increased cost of vehicles boosting that figure by 30%, it means a conservative estimate is now likely to be closer to £7.75.
Pegasus Commercial Funding indicates that stock funding is available at 5.9% per annum although such a rate would be considered exceptionally low today. Using a loan calculator, funding a £15,000 car at 80% (£12k balance to finance) means that the cost in interest of funding at 5.9% for 45 days is £73.78.
The cost of marketing a vehicle on online sites has increased massively since the pandemic with Auto Trader likely to account for most of a dealer’s online spend. Taking a volume retailer’s likely spend of around £120 per car month, just incorporating this cost and no others together with the stock funding and lost profit figures above, a £15k vehicle in stock for 45 days is costed at £600 or £13.33 per day.
Whilst dealers who successfully match customer requirements to their stock profile should benefit from a reduction in a vehicle’s days in stock, the picture is further complicated by other emerging trends. Retailers looking to combat the short supply of used vehicles by retailing older stock are likely to have adjusted disciplines that impact days in stock. But in the rush to stock forecourts, dealers need to balance the longer term cost of increased days in stock, characteristic of retailing older models, with profitability.
“A broad brush approach just doesn’t cut it anymore,” Andy Whitehair, Autofinity’s CEO said. “If you haven’t got a handle on not just your used car profile and your customer base but also the processes of vehicle prep, stocking, marketing and sales, the true cost of selling a vehicle could be eye-watering. Dealers who are experimenting with a mix of vehicle profiles, including older models, need to have a thorough understanding of the cost to profit ratio to inform future used car strategy. The right data makes the difference between optimal profit and doing okay.”
When Arbury Group, highly commended in this year’s AM awards in the Online Consumer Experience of the Year in the franchised category, began its journey to transform its digital capabilities, group managing director Ben Archer turned to Autofinity and its ViHUB system.
Integrating with all leading suppliers including the DMS, OEM and dealer websites and online markets such as Auto Trader, Autofinity’s ViHUB Platform provides a ‘single view or the truth’ for all vehicles, new and used. This provides customers with real time inventory insight, including days in stock, as well as the knowledge that all processes, systems and portals are using accurate data. The platform also allows customers to set their own rules on how all stock is managed, including automatically identifying vehicles that don’t match the group’s retailing profile then pushing them to disposal routes.
“Among other things, Arbury now have full oversight of every aspect of their inventory including days in stock making it much easier to calculate both a vehicle’s cost to the business and its profitability,” Andy added.
Data from Marketing Delivery in September last year revealed the length of time between a car buyer making an enquiry about either a used or new car to making a purchase is just five days. Pre-pandemic the average days between first enquiry and purchase was 16 days which dropped to six days in November 2021.
Low stock levels fell again in April from 72 to 71 for franchised dealers from January’s average of 90 units, according to eBay Motors’ Market View, whilst dwindling stock levels also saw average days to sell increase from 30 days in March for franchised dealers to 34 in April.
“If a dealer is unable to easily access informative data or cannot easily cross reference, they need to look at their overall dealer inventory management process,” Andy said.
“With supply under continuing pressure maintaining fairly balanced pricing, the used car market is retaining its stability but dealers now really need to focus on their individual place in the market. Combining stocking profile and inventory management with costs such as marketing, days in stock and staff is crucial. Having the technology in place to achieve that is fast becoming the differentiator between dealers who are treading water rather than those who will begin to forge ahead.”