Mar 19, 2014
Spring is on the way, the sun is shining and you are moving cars. However, there are still those one or two units you purchased back in December that just have not MOVED. Many dealers are in the mindset that they will make money on these units eventually and they call their inventory finance partners to ask for extensions, or they continue to keep their own cash tied up even longer until there is a retail deal on it. They are afraid to ‘lose money’ on the deal. However, it is important to know how long to hold that unit in inventory and when it’s time to get it gone. Turning inventory is key to managing your costs and profit.
It is evident that over the years rising costs of doing business and changing legislation has increased the cost of owning inventory and cut into profit margins for independent dealers. This is true whether you use an inventory finance partner or your own cash. The longer you hold on to those aged units, the more it cuts into your capital.
If you have an inventory finance partner and ask for an extension on a unit past your contracted term, most will charge you additional fees and interest to keep that unit on your line of credit, as it increases the lenders’ risk on top of the ‘real estate’ you are losing on your lot due to an aged piece. Even if you are using your own cash, if you are not turning inventory quickly, you are paying to have that stale unit on your lot in the long run.
If you would like to effectively know and calculate how much a unit eats into your profit per day and calculate your holding cost (as well as so many other helpful tools), then I highly recommend taking the Certified Master Dealer training offered by the NIADA. If you are a member of your state’s Independent Automobile Association, you are automatically a member of the National Independent Dealer Association. NIADA Director of Dealer Development and Certified Master Dealer Instructor Joe Lescota is a wonderful instructor with many years of experience committed to dealer training and success. Being a previous dealer principal himself, he has walked in your shoes.
I’ve personally taken the class and found the tools he teaches to be invaluable to the independent car dealer’s viability. The class can help you figure out the major expenses in your business, how to decrease expense and how to increase profit AND how to turn those units quicker. You would probably be surprised at how much it’s actually costing you to hold on to aged inventory. To learn more about these classes visit www.niada.com.
In conclusion, it is costly to keep aged inventory if you are using your own cash or a floor plan company. Cut your losses and move on. Be educated about your business and the industry by checking out the CMD training. It will be worth it for your business.
Post written by Karen Millwood, Account Executive for NextGear Capital, Inc., Greenville, SC market
About NextGear Capital:
NextGear Capital is the most comprehensive and innovative provider of lending products for vehicle dealers and auctions. With pioneering technology and a total commitment to customer service, NextGear Capital empowers dealers to floor plan vehicles from anywhere, at any time. NextGear Capital lines of credit can be used for a variety of purchases – Retail, Wholesale, Salvage and Diversified Products. The company provides inventory financing to qualified NextGear Capital dealers purchasing inventory at Carolina Auto Auction.
1320 City Center Drive, Suite 100
Carmel, IN 46032 • 888.969.3721