Best Ways to Source Dealership Inventory

Sourcing dealership inventory efficiently and effectively is a key component of auto dealer success. Many dealers know their market and know what type of inventory sells, so the next dealership inventory search challenge is finding and sourcing that type of inventory. Utilizing a variety of inventory sources ensures that a dealer can always find the vehicles they are looking for. So, what are the different options available for an auto dealer to find inventory?

Physical Auctions
Many dealers say there is nothing like being able to touch, feel and smell a vehicle before purchasing it to retail. One of the few places for dealers to purchase inventory in-person are physical automotive auctions, such as Manheim. Dealers can walk the lots before a sale, note the vehicles they want to purchase and then bid on those units when they go through the auction lanes.

Online Auctions
One of the most convenient ways for a dealer to source inventory is thorough a digital auction, such as OVE, Simulcast and ACV auctions. These auctions allow dealers have convenient 24/7 access to conduct a dealership inventory search to view both new and used inventory, and allow dealers to bid and purchase various vehicles from all over the country.

Consumer Trade-Ins
Many consumers visit dealerships willing to exchange their current vehicle for another vehicle on a dealership’s lot. Especially for used car dealers, consumer trade-ins can be an excellent way to source inventory. In addition, dealers that use Kelley Blue Book’s Instant Cash Offer service have the additional flexibility to decide what they are going to do with the consumer’s vehicle. After the vehicle is acquired, a dealer has three days to decide whether to resell it on the lot, take it to auction or to sell the car to Autotrader for full trade-in price.

Local Dealer Network
A local dealer network can take some time to build, but it can also be one of the most powerful tools available for local auto dealers to exchange aged inventory. Aged inventory at one dealership could be a quick sell at a different dealership.

Utilizing a mix of these sources ensures that each and every automotive dealer acquires the type of inventory they are looking for. Looking for new locations to source inventory? Be sure to check out our Auction Finder tool.

Monitoring Floor Plan Financing Metrics

Automotive dealers use a variety of metrics to measure their dealership’s efficiency and profitability. Of course, some of those metrics include overall revenue and the number of sales made in a particular month. However, there are often other metrics that a dealer should monitor, especially in respect to a dealer’s floor plan financing.

Dealership Turn Time
Turn time refers to the average amount of time a vehicle spends on a dealer’s lot. Yearly turn time refers to the number of times in a year a dealer can sell all the inventory on their lot. For example, vehicles on a dealer’s lot spend an average of 40 days there. From that estimation, a dealer could calculate their yearly turn time. In this example, a dealer has 9 turns yearly. How long are vehicles staying on your dealership’s lot? What’s your dealership’s yearly turn time? Keeping tabs on these numbers can help dealers monitor their dealership’s inventory turn health.

Aging Inventory
Aged inventory is a problem for each and every dealership. Inventory that stays around too long is not only depreciating, but it can also tie up dealership cash flow. How many vehicles on your dealership’s lot have been there for longer than three months? For cars that have been on a dealer’s lot too long, consider developing an aged inventory exit strategy.

Holding Cost Per Day
Whether a dealer realizes it or not, it costs money to have a vehicle on their lot. Determining how much it costs for a dealer to keep a vehicle on their lot can be an important metric for dealers looking to keep costs low and improve dealership profitability. In order to establish a dealer’s holding cost per day a dealer will need to have an idea of their monthly expenses and holding costs. From there, a dealer can divide the holding cost by the number of units in stock for the month. Once that’s determined, divide that number by the number of selling days available in a month, and a dealer should have their holding cost per unit per day. Walk through this equation by using the formulas from our post on three floor plan financing formulas every dealer should know.

Using these key metrics can help automotive dealers get a better understanding of how efficiently they are managing inventory, cash flow and their floor plan financing solution. Once those metrics are benchmarked, dealers can set realistic goals to optimize dealership operations and profitability.

Utilizing the Structure of an Auto Floor Plan

Dealer utilizing an auto floor plan at an auctionMany of the best dealerships develop processes and routines that result in overall dealership profitability. A lot of that success can be attributed to dealers who stay disciplined in adhering to the processes they’ve created. One of the many benefits of utilizing an auto floor plan as opposed to cash or a standard bank business loan, is the structure and added discipline it can provide to a dealership’s operations.

With cash or a regular business loan, a dealer will have extra capital on hand to purchase inventory, but there isn’t quite the same incentive to stay involved and motivated to sell vehicles.

Think about an auto floor plan as if it is a credit card built solely for a dealer to purchase inventory from auctions and other sourcing options. As a dealer sells the vehicles on their lots, they pay back their floor planning lender the amount of the loan. If a dealer uses a floor plan line of credit to purchase a vehicle and if the vehicle doesn’t sell in a contractually determined number of days, dealers are charged a small fee.

A number of automotive dealers prefer, and aim to have their contracted floor planning terms match or align with their inventory turn times. Let’s say a dealer’s preferred time frame to sell a vehicle is 60 days, and they have the floor plan terms mentioned above. If a vehicle doesn’t sell within a dealer’s preferred time frame, the second fee could trigger a review of the vehicle and initiate additional action items for a dealer. Was the unit a bad buy? Was time wasted during reconditioning? Was the unit not priced appropriately? Does the unit need to be retailed at auction? This secondary review of an unsold vehicle helps to create a proactive, instead of a reactive, situation for an auto dealer, where they can make an informed decision on what to do with the unit.

Developing processes to maintain dealership profitability is essential to dealer success. Using the structure of an auto floor plan line of credit to the dealership’s advantage and staying disciplined in acquiring inventory can greatly benefit a dealer long-term.

Why Dealers Need A Floor Planning Finance Solution

Dealers rely on fresh inventory and reliable financing to ensure their dealership remains operational. Every dealer has their own preferences and opinions on the type of financing they want to use to purchase inventory. Some dealers prefer to use the cash they have on hand, others use standard bank loans, and others prefer to use a floor planning finance solution. Each type of capital has its own set of benefits and disadvantages.

Cash
Many dealers will use cash to purchase inventory. Dealers like this option because it allows them to own the car outright. Their purchased inventory doesn’t collect interest, and there aren’t many other fees associated with buying a car with cash.

However, using cash has quite a few disadvantages. Dealers don’t often consider what it totally costs to use their own cash for purchasing inventory. Many automotive dealers only have a set amount of cash on hand, and that cash is often earmarked for other expenses beyond inventory, such as dealership payroll, facilities and marketing. After taking care of those expenses, how much cash is really left to purchase the amount of inventory needed for dealership profitability? How much is really left over to re-invest in the business?

Independent auto dealers are also incredibly busy people. Their time is valuable, and purchasing inventory with cash can take up a lot of time with administrative tasks. Dealers will go to auction, bid and win a car, and then have to go pay for their new piece of inventory. If a dealer is paying with cash, there’s typically extra paperwork to complete while at the auction, and extra monitoring to ensure their payment clears.

In addition, vehicles are a depreciating asset. Any car a dealer purchases will eventually depreciate in value if it sits on a dealership lot long enough. If that vehicle was purchased with cash, that initial cash investment will also depreciate. If the car doesn’t sell for a while, the dealer’s options are pretty limited. Their capital is tied up in the vehicle so they can’t invest in another unit. In addition, the dealer isn’t likely to make back their initial investment due to holding costs and additional depreciation.

Standard Bank Loans
Some dealers prefer to use a bank loan to purchase vehicle inventory. Though dealers can often acquire the needed amount of capital from a bank, there are some drawbacks to a standard business bank loan.

With a bank loan, there isn’t any incentive for dealers to sell a vehicle or profit quickly. If there isn’t any incentive to sell vehicles, the inventory may just sit on their lot, and they can run into the problem of aged inventory. Aged inventory depreciates and won’t be worth the price the dealer initially paid for it, so even if the vehicle sells, it will sell at a loss to the dealer. In addition, if the cars on a dealer’s lot don’t sell before a loan payment is due, an automotive dealer could find themselves in a tricky situation.

With a bank loan, dealers will also need to take care of the numerous administrative tasks that come with purchasing automotive inventory.

Floor Planning Finance Solutions
Floor planning finance solutions are one of the easiest ways for dealers to purchase inventory, and one of the most flexible ways to free up dealership cash flow.

Dealers only have a set amount of cash on hand to pay for various expenses. With a floor planning finance solution, dealers don’t have to use the money they have on hand to pay for inventory. This allows for additional flexibility for dealers who need to pay for other expenses and want to grow and improve on other parts of their business.

This flexibility also gives dealers more options to handle aged inventory. If a vehicle hasn’t sold in the amount of time a dealer wants that inventory to sell, there are more options available to a dealer than if they had bought that inventory with cash. With a floor plan finance solution, a dealer can pay a small amount of the car off at a time, extend a vehicle or they can buy down their depreciation over a period of time.

In addition, floor planning finance companies are uniquely attuned to the needs of dealers. Beyond offering capital for inventory, there are other services offered to alleviate some administrative needs of auto dealers. For example, utilizing a floor plan means that a dealer doesn’t need to fill out much additional paperwork at an auction in order to complete a purchase. Other services to offload administrative tasks are also offered to a number of dealers. These services include records management, title services depending on a dealer’s state, collateral protection and state-of-the-art online and mobile account management tools.

Though it might seem like a better move to purchase inventory with cash or through a standard loan, a floor planning finance solution will often increase a dealer’s purchasing power and improve the flexibility of the capital they have on hand.

Resources Focused on Dealer Success

Each dealer needs a number of tools and relevant knowledge to help build a profitable and successful dealership. As a partner to each and every automotive dealer and their dealership, our dealer resources are focused on helping dealers succeed. To better serve dealers in navigating the industry, we’ve developed a section of our site that’s dedicated to housing valuable dealer resources.

Accessible Learning Materials
While a floor plan is helpful to aid in acquiring dealership inventory, dealers need additional knowledge in order to keep and maintain dealership success. Automotive dealers interested in reading up on dealer trends and learning about what others are doing in the industry can easily access a variety of our dealer resources. These resources include case studies, webinars, videos and white papers that span a variety of relevant topics such as best practices on sourcing, buying and selling your inventory – valuable information that dealers can immediately start putting into practice.

Easy To Use Auction Finder
For dealers looking for new places to source inventory, be sure to take a look at our auction finder tool. Dealers can search by auction name or location to simply and easily find auctions in a dealership’s surrounding area.

Access to New Programs
We’re dedicated to giving dealers the tools they need to increase dealership efficiencies. For example, our Rapid Pay program allows dealers to simply fund non-auction purchases and easily send titles directly to NextGear Capital with a pre-paid FedEx waybill. In addition, our partnership with Ready Logistics allows dealers to floor plan transportation costs. Both solutions were created with our customers in mind, and help dealers save time and money on previously time-consuming tasks.

Accessibility to important dealer resources ensures that dealers are informed of essential information to help run their businesses. Have any dealer resources you would like to see or questions that you would like answered? Click here and let us know!

Digital Retailing Improves Turn Times

Turn times improved through digital retailingOne of the most frustrating portions of a customer’s car dealership experience is the amount of time it takes for a vehicle transaction to take place. For dealers, it can be frustrating to have a less-than-acceptable inventory turn time. Digital retailing can help both dealers and customers have a more ideal overall car buying experience. For customers, digital retailing means they can easily research all their options, and improve the amount of time it takes to negotiate a deal. For dealers, improving dealership websites with digital retailing tools can help them to acquire warm leads and qualified buyers, which in turn, can improve inventory turn times.

According to the 2017 Cox Automotive buyer’s journey study, among the customers that shopped online to purchase a vehicle, they spent 60 percent of their time searching online for a vehicle. On average, customers will spend an average of 15 hours in the process of looking for a vehicle to purchase. In addition, 21 percent of a customer’s total shopping time is spent at a dealership. However, the more time a customer spends at a dealership, the more overall customer satisfaction begins to decrease. Beyond 90 minutes, overall customer satisfaction begins to significantly decline. Customers who show up with money in-hand and ready to buy leave frustrated with the amount of time it takes to complete a transaction. For some dealers, it means that they just spent 90 minutes turning a buyer into a frustrated customer.

So how can digital retailing aid in improving dealership turn times and customer satisfaction?

Transparency

Many current customers are used to purchasing a variety of products online. They can research products extensively, and track where their purchase is at any moment. This proliferation of online shopping has fueled customer desire for this convenience in the automotive space. According to a Dealertrack study, 87 percent say the buying process needs to be more transparent. Customers want to know exactly what is needed to complete their car buying transaction, and they want the ability to research and gather information about different dealership options before they fill out paperwork to make a purchase.

Allowing customers to fill out purchasing options on dealership websites improves overall dealership transparency and customer satisfaction. According to the Dealertrack study, 71 percent of those surveyed don’t want to feel pressured to fill out paperwork. Digital retailing gives customers the ability to conduct research and complete purchasing activities in a space where they feel comfortable.

Allow customers to negotiate online

When negotiating in a dealership setting, customers are put-off by multiple handoffs, missed communication between dealership team members in addition to the amount of time it takes for a deal to be put together. Many customers are already comfortable making purchases online. However, many automotive customers will still want to negotiate a price for their vehicles. For customers that are comfortable, give them the opportunity to negotiate price on dealership websites. This can help save time when completing a vehicle purchase, and aid in improving overall customer satisfaction.

Bridge the gap between in-store and online

Customers will frequently expect a seamless online-to-in-store experience. If they complete part of the purchasing process online, they will often expect dealership team members to be able to immediately access and complete the transaction they initiated. Is your dealership website able to easily allow customers to complete purchasing actions online? If they fill out an application online, will it be simple to complete their transaction in-store?

Improving turn times with digital retailing
It is clear that current dealership strategy must include digital retailing tools. According to the Dealertrack study, 30 percent of shoppers who submit a lead through digital retailing tools ultimately purchase the vehicle. Digital retailing not only makes it easier for potential customers to find and view dealership inventory, but the additional ability to complete purchasing activities also means that more qualified leads are able to be pursued and potentially closed by dealership staff, which helps to improve dealership inventory turn times.

Tips for Dealers Trying to Move Aged Inventory

Aged inventory is a problem for each and every dealership. Holding on to aged inventory means your dealership cash flow is tied up into a rapidly depreciating asset. Though utilizing a floor plan can help to prevent your cash from depreciating, creating an inventory exit strategy is essential to ensure a dealership ecosystem of efficiency and profits.

Exit Strategy Planning
Your exit strategy will need to kick in from the moment a new vehicle arrives on your lot.  Streamlining your dealership’s reconditioning process can help get a new car out on the lot in a hurry and decrease the amount of time you’re tying up cash in something you can’t sell yet.

Inventory Age Points
At what point does a vehicle begin to get stale, and how long is its life cycle on your lot? Plotting out a strategy that automatically moves these older vehicles through an exit process can help take guesswork out of what your dealership should do at certain points in time. Exit activities could begin at 15 days and increase at the 30, 45 and 60-day marks. For example:

  • At the 30-day point, your plan could include moving some vehicles to a fresh new location on your lot.
  • At 45 days, move aged vehicles to the front line of your dealership’s lot, detail again, and evaluate the current price.
  • At 60 days, incentivize your sales team and prepare to move the vehicle to preserve profits.

Where do you break even?
Hopefully, a fully defined exit strategy in place will help prevent any vehicles from reaching the industry average of 60 days on a dealer’s lot. However, in the case some inventory reaches that point, dealers will need to decide for themselves what individual vehicle break-even points are.

What can you do with old, unsold inventory?
The places you source your inventory may also be useful when you need to dispose of a vehicle that just didn’t work for your client base. Auctions, a inventory exchange with your local dealer network, Autotrader, OVE and other sources can help you get rid of aged inventory and reclaim the cash you have tied up in these older vehicles.

Casting off aged inventory that didn’t sell isn’t easy or fun, but it will benefit your dealership long term. Careful planning and attention to your full exit strategy will help you free up more capital, improve your profitability, and hopefully fill your lot with activity and fresh new models for your customers to enjoy.

3 Things Dealer Floor Planning Can Do For You

Kathy Ward Dealer Advisory Board

Guy looking at cars that he has purchased using dealer floor planningDealer floor planning is one of the easiest ways for auto dealers to improve their business cash flow. Once approved for a floor plan, there are a number of ways dealers can see the immediate impact that a floor plan can make for their dealership.

Dealer floor planning allows you to choose how you want to grow your dealership
Floor plan financing opens up a number of options for a dealer to choose how they want to grow their business. Since a floor plan allows dealers to purchase extra inventory on a floor plan instead of using cash, this can lead to extra flexibility in a dealer’s budget. The cash a dealer has on hand can be used to pay for other expenses such as more staff, employee payroll, marketing or lot improvements.

Since dealers don’t have to worry quite as much about having enough cash on hand to purchase inventory, they are free to spend more time and money on their business growth goals.

Dealer floor planning gives dealers time back from administrative tasks
In a typical auction purchase, dealers will need to cut a check and persistently follow up with the auction to ensure individual checks have cleared and that the correct titles are received. This can take up a lot of a dealer’s time. With a floor plan, transactions and title transfers are taken care of seamlessly between the auction and floor planning company.

Dealer floor planning helps dealers to establish dealership discipline and routine
When a dealer uses cash or a business loan from a bank to purchase inventory, there isn’t always an incentive for dealers to sell vehicles or profit quickly on a sale. If dealers don’t sell inventory in a timely manner, their lots can quickly become overstocked and aged inventory becomes a looming problem. Dealers that use a floor plan have a number of contractually determined days until they have to pay their floor plan company back the original loan amount plus any accrued interest and fees. If a dealer hasn’t received a profitable bid on a vehicle due for payoff, that deadline can start a dealership’s inventory exit strategy.

Each inventory exit strategy will vary from dealer to dealer. Whether that plan includes wholesaling aged inventory or waiting for a better offer from a consumer, the floor plan deadline ensures that a dealer doesn’t let their investment depreciate.

What could your dealership do with more cash on hand? Could you hire more staff? Open another location? Purchase more inventory? Want to learn more about what dealer floor planning can do for your dealership? Find your local representative and we’ll get you connected.

Improve Turn Time by Streamlining Reconditioning

Mechanic looking at a vehicle to determine if it needs to go through the reconditioning processDealers who purchase vehicles at auction will often send those cars through a reconditioning process. It typically takes an average dealer seven to 10 days to make sure a car is ready to sell. How much of that time includes the reconditioning process? Depending on the state of the acquired vehicle, the amount of time reconditioning takes can vary. However, there are always steps dealers can take to improve the amount of time it takes for a vehicle to go through the reconditioning process.

Define the current reconditioning workflow
Many top dealers are able to recondition and have their vehicles customer-ready in approximately five days on average. In order to figure out how a dealer can recondition vehicles faster, it’s essential to know what the current process looks like and how long it takes one vehicle to go through that system. Take note of different ways to shave time off of that process.

Examine key bottlenecks
The people who understand where the most bottlenecks are in the reconditioning process are the people who take care of the reconditioning process each and every day. Ask for their input and their thoughts on how the reconditioning process could be improved. Are there tools available that would streamline employee communication and vehicle status? What individual is responsible for each part of the reconditioning process?

Develop an atmosphere of discipline
Dealership operations are a team effort. A team committed to reducing the amount of time it takes to recondition a vehicle can yield notable results in both dealership efficiencies and profitability.

Though it might seem like a waste of time to some dealers, consider what shaving days off of the reconditioning process can mean for a dealership’s cash flow. Each day a car sits on a dealership lot it costs a dealer money. Average vehicle holding costs can average $32-$40 per day. If one vehicle is front-line ready in three fewer days that can mean a savings of $120. Multiply that savings by the number of average vehicles a dealer sells in a year, that can mean significant savings.

Use Auction Reconditioning
For dealers that might not have an on-site reconditioning operation, it might be worth considering the reconditioning options some auctions have on-site. Reconditioning through the auction can help you move your inventory more quickly through the process, if you do not already have a vehicle reconditioning process in place. For example, Manheim auctions will frequently offer a number of reconditioning services

Take some time to evaluate how quickly your dealership accomplishes the reconditioning process. What steps can your dealership take to reduce the time it takes for a vehicle to go through the reconditioning process?

The Digital Car Buying Experience

Today’s car buyers spend a lot of time looking for a vehicle online. According to Cox Automotive’s 2017 Car Buyer Journey, car buyers spend 60 percent of their time online researching vehicles and dealerships. In addition, 98 percent of consumers want the ability to complete at least some of the car buying process online.

Dealers that invest in their digital presence not only have the ability to establish a solid customer touch point, but can also encourage a positive overall dealership experience. Considering that nearly half of all buyers visited the website of the dealership where they purchased or leased their vehicle, dealers that utilize their digital presence are likely to have more customers that are pleased with their vehicle purchasing process. So what digital experiences are customers looking for?

According to the study, the top three things a consumer wants to do on a dealership website are to take a 360-degree tour of a vehicle, reserve a vehicle for a test drive, and have the option to negotiate vehicle price online. Including some of these features on a dealership’s digital platforms gives consumers a simple way to view inventory and an easy way to contact your dealership. Customers will appreciate the added access to vehicle details in addition to how convenient it is to view dealership inventory and contact your dealership.

Though consumers appreciate the option to research dealership inventory and negotiate prices online, there are still some barriers between a potential customer visiting a dealership website and a customer visit. According to the study, many customers would feel uncomfortable negotiating a price for a vehicle if they haven’t had the chance to test drive it. In addition, 2 out of 5 consumers feel it is still important to have a personal connection with their salesperson.

It’s up to each individual dealer to determine how they want to run their digital platforms. However, providing ways for dealership customers to shop according to their preferences will ensure a pleasant purchasing experience that can lead to return customers in the future.