Inventory Management Key to Recovery for Canadian Dealers
Written By: Matt Lawson, Vice President of Dealer Software & OEM, TRADER Corporation
I would like to start on a personal note by sending my warmest wishes and deepest gratitude to all the front-line workers working tirelessly around the clock to ensure the safety and well-being of our communities around the world.
The weeks and months ahead bear uncertainty and thus are very concerning for all of us. Though we have seen uncertain times before and if history repeats itself, we will see a growth market inevitably follow. The differences in the choices we make today and in the weeks and months ahead will most certainly define our path through these choppy waters. Some will find prosperity again sooner than others.
What does this mean for my friends and customers in the dealer community?
As I see it, dealers have three major streams which hold much of their overhead; People, Facilities and Inventory. Dealer Associations and Government branches have moved at an unprecedented pace in order to bring financial relief to dealers and support managing each of these critical cost centers. We are seeing Auto Makers and Retailers making real time decisions to augment their core business operational structures to the likes of which we have never seen before. It is that ingenuity, which gives me great hope.
With that said, let us narrow in on perhaps the largest challenge Dealers will face over the remainder of 2020; inventory management. The majority of conversations I have been having with dealers over the last few weeks has been centered around the instability of critical metrics dealers are using to make important inventory related decisions inside their operation;
- ‘What is a real wholesale price at the moment’,
- ‘How can market-day-supply be factual when everything is at a standstill’,
- ‘I’m concerned about the amount of inventory I have sitting in a holding compound’
Dealers are typically entering the spring market with a heavy investment in off-lease, rental fleets and an increased presence in the lanes at auctions – yet the uncertainty has caused them to take a pause. Broadly, dealers I’m talking to are worried that a 30-day supply will likely turn into a 120-day supply – or worse. Every dollar counts and cash is king during times like these. So, what are dealers to do?
What Actions Should Dealers Be Taking?
Let’s start by looking forward. We know that 2021 model year stock will hit lots and compounds later this year. The wholesale market is likely to become over-stocked with off-lease inventory and we have already seen OEM’s pulling levers to try and influence consumer confidence. These three factors mean that dealers need to ensure they are appropriately capitalized to manage the inbound influx in the wholesale market.
Does that mean they should quickly liquidate everything they have in stock today? No, I don’t believe so.
Should they be thoughtful and take immediate action on every vehicle in stock? Absolutely.
This implies that dealers need to take a detailed look at every car and assess the car for what it is, i.e. as it stands today. The fact is, there are still active consumers in the market. We are seeing upwards of 50K hard leads per week against dealer inventory on autoTRADER.ca and consumer traffic levels, for all intents and purposes, have remained stable. When taking a closer look at email leads driven out of autoTRADER.ca, it is clear there are real shoppers with real intent on cars with real money in them. There are opportunities out there, but dealers need to be surgical with their approach. It is not just a game of averages (i.e. 100 leads = 5-10 deals at $2K per copy, etc.). Every car needs an in-depth detailed analysis of its opportunity in its local market and a real effort for each to maximize its potential. I am not knocking the tenured Used Car Manager, in fact the opposite – they are perhaps more important now more than ever – but what I am saying, is that historical experience doesn’t apply in today’s market conditions. Enhanced data sets are critical for a fulsome profit potential analysis.
Inventory Management Key
Our partners at vAuto have never been as focused on helping dealers navigate these challenging decisions as they are today. We are seeing them engineer tools for dealers at lightning speed to help inform them on the fluidity of critical decision metrics such as ‘Market Days Supply’, ‘Cost to Market’ and ‘Price to Market’. vAuto will soon release a system enhancement which alerts dealers when vehicle rates suddenly change either favorably or unfavorably. These alert mechanisms will inform dealers at a VIN level of the stability, improvements or risks, and trends. These tools will support decisions to be made against active inventory and additionally inform decisions in advance of the vehicle acquisition.
These data points are so imperative, now more than ever. The Performance Management team at vAuto are working around the clock to help dealers measure, review and interpret the data they are seeing inside the vAuto software. Dealers of all shapes and sizes in every market across Canada need to lean into their inventory management analysis now as informed decisions today will deliver successful outcomes down the road.
With a slow but sure return to open showrooms around the country, let us dig into these important conversations now. At TRADER Corporation, we will continue to monitor and assess consumer fluctuations daily and, with our partners at vAuto, we will link arms to support you with the tools and data to help guide you through.