Using a car floor plan is one of the simplest means for a dealer to access additional capital to purchase inventory. However, the extra buying power that comes with a floor plan shouldn’t overshadow responsible inventory management.
Data-based decisions
Every dealer is looking to drive revenue and profits through the vehicles they sell. Often, in order to accomplish this goal, dealers have to be disciplined and unemotional about the inventory they acquire. Every market is different when it comes to what will sell and what’s in demand. Using tools like Stockwave, and gauging interest on AutoTrader should give dealers a good idea of vehicles that people in their market are looking for.
Additionally, dealers can use dealership data to determine if inventory strategy needs to change. For example, if a dealer has too much aged inventory and it’s affecting revenue, it’s best to examine aged inventory and be diligent about dropping prices until those units move, and make up the drop in pricing with more total sales volume, and more Finance & Insurance product sales opportunities.
In the same vein, if a dealer is overachieving on profit margin but not struggling with aged inventory, it’s likely best to be more conservative and protect profit margin with smaller pricing drops and hold onto the units longer.
Accountability
Balancing the correct amount of capital and inventory helps to keep sales and auction buyer teams accountable.
Simply because a dealer has extra funds available doesn’t always mean that they should purchase extra inventory. Sometimes, dealers make hasty buying decisions simply because they want to put more cars on their lots. Thoughtless purchases that age can be a drag on overall dealership capital and revenue. Unfortunately, when dealers buy too much inventory these issues don’t always easily present themselves, and can be difficult to diagnose.
For sales teams, excess of inventory can distract focus from aged units. Though recouping costs by sending a vehicle back to auction is an option, selling inventory to a consumer will almost always be preferable.
With a constant, vigilant eye on the balance of aged inventory and capital on hand, dealers that manage their inventory well will often find that the extra cash flow from a floor plan can help take their operations to the next level.