A recent television commercial showed two men trying to fit the wrong battery into a vehicle. The commercial flashed back to when the two men were boys and trying to fit a square peg into a round hole. The point the commercial made was that the advertiser wants to sell what the customer wants and not what they happen to have on hand that day.
In the last few years, the used vehicle department has seen sweeping changes. With the advent of used vehicle superstores, the increased cost of used vehicles, the decreasing gross profit on new vehicles and the average age of vehicles on the road rising, it is now more important than ever to get the most out of your used vehicle investment.
The new vehicle department tracks stock on hand by model line and has sales, cost of sales and gross profit analysis by model line as well. This allows for easy determination of what is selling and what is not and the related level of profit. So why don't we do this for used vehicles as well?
Most accounting computer systems have the ability through sub-accounts to provide all the information needed to track supply and demand of used vehicles. The used vehicle inventory account on the balance sheet can be separated into several categories such as subcompact, compact, midsize and luxury for cars, and compact and full size for trucks. Once the inventory sub-accounts are set up, the sales and cost of sales accounts that complement them should be set up using the same categories. This will now allow for a process of tracking sales, cost of sales and gross profit by vehicle category. You can also easily determine day's supply and wholesale loss by model line. The key is developing the categories for your operation. Alternatives include cost levels, types of cars, payment levels, etc.
The key payback to this process is identifying demand. By moving to demand-driven inventories, we are entering the current age of retailing. When a potential customer comes into the lot, we need to identify their interest in as much detail as possible. These answers will be logged and tracking of demand has begun. After a short time of tracking inventory turns and gross profit per vehicle type, it will become apparent what types of inventory are driving customer demand and what types of vehicles are the most profitable.
This system is very similar to how demand for parts is tracked in the parts department. Most parts systems allow for tracking of demand through recording customer requests (lost sales). Only after a part gets a certain number of requests will the system automatically order the part. If you do not allow your manager to override the system to purchase expensive parts that do not sell, why should the used vehicle manager be able to buy "hot units" without any history of demand? This process will not inhibit the dealership from selling new vehicles because of an undesired trade-in, it will actually provide an easy means of determining what trade-ins should be automatically wholesaled.