Key Benchmarks Top Used Vehicle Dealers Achieve to Outpace Others In The US Market

Most dealers agree that if you’re going to profitably and successfully sell a lot of used vehicles, there are many things you have to get right.

Market Days Supply: This metric measures the market supply and demand of used vehicles based on the number of competing units available in a market, and sales over the past 45 days. The best dealers review this metric in two ways-on a per-car basis as they make appraising, acquisition and pricing decisions, and on a total inventory basis as they gauge the overall desirability of their units in stock. In either case, dealers strive to find vehicles, and maintain their inventories, with a low Market Days Supply, which signals fewer competing units and a greater likelihood of a fast retail sale. Analysis shows the 60 dealer groups in the US achieve an overall Market Days Supply average of 69 days for their inventories-a standard that suggests a good degree of discipline as they acquire inventory.

Cost to Market: This metric measures the difference between your cost to own/recondition a vehicle and current retail prices for competing cars. Top-performing dealers strive to keep a lid on their Cost to Market metrics to maximize the spread for their front-end profit. The inventories of the 60 dealer groups show a total Cost to Market ratio of 88 percent, which translates to a 12 percent spread for front-end gross.

Price to Market: This metric shows how your vehicle prices compare to those of competing vehicles in the market. Many dealers religiously reference the Price to Market ratio as they decide how to position and price a vehicle in their market. The metric is also useful at an inventory-level view to identify a dealer’s pricing strategy. For example, if the total inventory Price to Market runs above 100 percent, a dealer either has a lot of vehicles that, based on their Market Days Supply, merit an above-market asking price or, more likely, the dealer uses price to maximize front-end gross. Among the 60 dealers in my analysis, only a few showed overall inventory Price to Market ratios above 100 percent. The average runs 98 percent-a figure that indicates a balanced approach of pricing vehicles based on the competition, age in inventory, profit objective, and other factors.

Average days in inventory: The 60 dealer groups showed an average days in inventory of 37 days-a figure that suggests room for improvement. Market Leaders typically recommend that dealers maintain at least 55 percent of their inventory under 30 days of age to ensure sufficient sales velocity and profitability, given today’s era of price competition and margin compression. To meet this standard, a dealer’s average age in inventory should run closer to 30 days, or even less. Some of the leading dealers were achieving average days in inventory at 25 days or less.

Annual inventory turns: As a group, the 60 dealers turned their inventories an average of 13 times a year-exactly in line with the benchmark. I wasn’t at all surprised to see the following characteristics of dealers with average annual inventory turns at six times or less: Their average days in inventory often ran 50 days and higher, and their Price to Market metrics often ran north of 100 percent.

But we should also acknowledge another take-away from my analysis: Even among the best, there’s always room for improvement.

dalepollak.com

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