Are going to be able to sustain the momentum you established in your used vehicle departments in 2012? Or perhaps your used vehicle department performance wasn’t so good, and you’re promising to do better in 2013?

At NCMi we just finished a record year in terms of the number of classes we taught and the amount of dealership personnel we were able to help educate to better understand the true workings of their respective departments.  We focused on the real ingredients of what it takes to achieve and sustain consistent profitability. There is not an area of the dealership where consistent profitability is more elusive than in the used vehicle department.

In fact, near the end of each Principles of Used Vehicle Management course I tell the class they can now go back to their dealers and say, “Boss, I now know what my real job responsibility is for the first time.”  And their boss says, “Great…and exactly what is that?”  He or she says, “It’s to get the highest return on investment for every asset (vehicle) that we trade for or buy at an auction!”  The dealer might look at them a bit quizzically and say, “Right!”

Unfortunately, that is most likely not the conversation happening in most dealerships. It is usually focused on whether our grosses per copy or PVR are as high as we think they need to be profitable.  I believe that is not ideal, because it misses the larger issue:  how we can attain the highest return on investment on the assets (vehicles) we acquire for sale at our dealerships.

In our NCMi classes we spend the first day taking our student through the calculations of just how we would maximize our Used Vehicle ROI…and it’s a really simple formula:  We start with our monthly USED VEHICLE NET PROFIT (assuming we have some to start with) and divide it by your AVERAGE DAILY USED VEHICLE INVENTORY INVESTMENT, and then multiply your answer by 12 months (and convert the answer to a percentage).  We show the class some examples of this with an inventory of $1,000,000 and then $2,000,000, where the profitability stays the same and the only difference is the inventory amount.  Many of them are surprised to see the ROI at the dealership with $1,000,000 in inventory is twice that of the dealership with $2,000,000. “Wait a minute,” they’re thinking, “I thought we needed more inventory in order to make more money?”

Then begins the discussion on TURN and how important it is to be turning our dollars as quickly as possible to maximize our ROI.  Everyone is starting to clearly see how powerful the effects our turn rate has on profitability.  But then we turn (no pun intended) to the unfortunate killer of our turn rate, and that is our AGING problems…and yes, many of us have big-time aging problems.  So then we begin the discussion of DAYS SUPPLY and we talk about DOLLAR DAYS SUPPLY and UNIT DAYS SUPPLY, and how they need to be close, so that we are selling what we are stocking and stocking what we are selling.  Those DAYS SUPPLIES should be in the 30-39 range, not the 65+ days supply we often see in our classes.

We keep going with our discussions about AGING and conclude that there are three primary causes of our aging problems: (1) Pricing/Valuation; (2) Reconditioning; and (3) Planning.  We go into great detail in each of these areas and what we can do to fix them so we can begin increasing our TURN RATES and therefore, our ROI’s.  It sounds simple, and it is…but not necessarily easy.

If you are like a lot of our clients, your challenge is to sustain the momentum you established last year or in prior years; if so, you clearly understand this.  If, however, you are not quite sure how you are going to finally get on top of this elusive department, I have good news for you.  On January 29^th at 1 p.m. EST, I will be hosting a live webcast going into much greater detail on all things ROI and A.... You can attend the live session or purchase a recording, but it will give you some useful information that will help you improve your used vehicle operation.  It’s the first of a three-part, monthly webinar series I’ll be conducting through March.

Robin Cunningham is the lead instructor for the NCM Institute’s Principles of Used Vehicle Management classes and regularly conducts webinars on service and used vehicle management best practices. To learn more about our training programs on used vehicle management, visit us online or call 866.756.2620.