Auto retail experts are urging dealers to put these new used-car practices into action now to approach a 12-times annual turn rate.

By Jim Leman

COVID-19 is teaching used car managers to set and manage to a 30-day inventory turn. Dealers using a smart post-pandemic stocking and reconditioning practices, focusing on inventory selection, will be able to sell up to 25% more vehicles than they stock.

Auto retail experts are urging dealers to put these new used-car practices into action now to approach a 12-times annual turn rate.

“Dealers now have to spend money more wisely and scrutinize their processes, including mitigating risk for their inventory decisions,” said automotive retail consultant and auto dealer Ed French.

“Recon turnaround time is huge, but now it will be the King of ROI,” said Jasen Rice, owner of Lotpop, Inc., an inventory and Internet marketing and processes consultancy.

“Any time a dealer wants to lower inventory, their processes have to be better; that’s how it works in any industry,” said John Napoleon, dealer principal of Carson City Hyundai in Carson City, Nevada.

Not often factored into COVID’s impact on the industry is inventory transportation. John Robertson, senior executive vice president for said car haulers and transport drivers will be in shorter supply as the result of COVID’s economic collapse.

“My unqualified, gut feel is a span of 60 to 90 days before dealer inventory backlogs get to where they need to go,” Robertson said. “Dealers who have pent up demand will purchase.”

Robertson believes many dealers will retain existing inventory, choosing to retail those cars as “sale of the week” specials. 

“The finance companies have limited floor plan access to money,” he said, “and not only are some auctions closed, but dealer floor plan is reduced, so dealers can’t freely go buy cars now. As money is freed up by finance companies, we will see a huge rush to get cars out of auctions to dealers’ lots.”

French noted how the de-fleeting of rental car companies and the 1.8 million off-lease units that will arrive at dealerships over the next 90 days will put further downward pressure on the used car market.

“We saw this happen in ’08 and ’09 as well,” he said, “though not as significantly as this will be.”

Because of these reasons and more, dealership inventory management practices must change.

Coming out of the pandemic, most dealers will choose to continue carrying their typical sale rate — carrying 150 vehicles to sell 100, but Rice says that practice is now unwise.

“Given the new 30-day inventory turn goals, it’s going to be crucial dealers don’t overstock,” he said, “but they do need to work their inventory flow smartly.

“We can no longer source 10 to 30 replacement cars or so after a busy weekend. It can take one or two weeks before those cars hit your lot, which equals seven to 14 days of lost selling time. Then, that big lot of cars arrives and floods recon and overwhelms the staff, so time-to-line falters,” Rice said.

“Instead,” he added, “replacements should already be sourced beforehand and into recon, so those cars hit the sales lot within two to three days.”

Dennis McGinn, founder and chief executive officer for Rapid Recon, said dealers using the company’s reconditioning workflow tools reduce reconditioning cycles from two weeks or more down to 72 hours.  More than 2,000 dealerships use this time-to-line, speed-to-sale tool, he said.

“Many dealers using this workflow tool get their used cars sale-ready to take advantage of the new 21-day prime-retail window,” McGinn said. “This is a critical benchmark to hit if dealers want to maximize margin on used car sales but also massively boost the dealership’s turn rate.”

Experts believe that, for dealers to compete profitably in the post-COVID economy, the adoption of recon time-to-line and speed-to-sale tools unquestionably will be vital technology for all dealerships.

Interestingly, mobile and remote workflow assets such as vehicle location and remote vendor management tools within some recon software systems also enable dealership staff to work productively in social-distancing-impaired workplaces.

“A dealer called during COVID, who, far from asking for accommodation during the pandemic, said our recon tool allowed his technicians to keep their distance from advisors and the used car manager, and continue to work safely. He said this remote capability enabled their ROI to ‘go through the roof,’” McGinn said.

Vehicle transport will be an issue for many dealers once governments lift social distancing restrictions.

“Transportation and logistics will become as crucial as the car,” French said. “f I buy a car Friday, I want it here Monday, the nature of just-in-time deliveries as we come out of COVID.”

“If I have only 30 days now to retail cars, that means I can ill afford cars sitting around a day or two to get into recon,” he continued. “Having in place an automated recon tool to drive this rate of turn is no longer a luxury but a necessity.”

Napoleon, as are many dealers, is using the downtime to invest in seizing post-COVID opportunities. “Situations like COVID that come along battle-test plans,” he said. “Those of us who make it will have learned how to be more efficient.”