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Pre-Owned Department – familiar scenario – how to increase the Gross Profit?

Pre-Owned Department – familiar scenario – how to increase the Gross Profit?

2 minutes, 46 seconds read.

Pre-Owned department – How to increase the Gross Profit?

Does this scenario sounds familiar to you?

Situation:

Units in Inventory: 88

Total Inventory: $1,800,000

Average cost of unit in stock: $20,450

Units over 90 days: 18

Current sales per month: 30 Units.

How to improve the situation in this dealership?

The dealership pre-owned sales mix (of the average 30 sales per month) is:

10 units: Sold at or above average gross profit.

10 units: Sold at around average gross profit or slightly below.

10 units: Sold at way below average/loss.

From the analysis of the inventory, with 18 units over 90 days in stock and an increased number approaching the 60+ days in stock, we can see that the dealership has a problem.

They price the vehicles above average for the first 30/45 days and then start discount them gradually based on the number of inquiries (or the lack of) for each vehicle.

The GM authorize frequently the Pre-Owned Sales Manager to provide “spiff” and flat amounts above the usual pay plan to the sales staff for selling the over 90 days units. This increases the cost of the dealership even more for selling these old units, often at a loss (not even counting the Floor Plan interest cost).

The vehicles are often sold with minimum reconditioning. Most of the trade-ins are in good shape due to the loyal clientele, but some requires extensive reconditioning. The service department charges a lot to recondition the vehicles and is quite busy, not being the priority to service the Pre-Owned department (as first priority is given to service customers).

The Pre-Owned Manager wants to acquire more vehicles to increase the gross profit of the department.

The GM ask for input and advice. Is the 3rd Pre-Owned manager in 2 years and is hard to get an experience Pre-Owned Manager.

What would you do? Here are some of our suggestions:

Some actions that were implemented:

1).- In 30 days eliminate the over 90 days units (even at a loss). Try to aggressively retail them and if this is not possible at the end of the 30 days, wholesale them.

2).- Monitor the 60 + days units and assess condition and recondition when needed (or wholesale if deemed not worthy). Price aggressively to avoid becoming 90 + days units.

3).- With the funds obtained from the sale of the over 90 days units (See N# 1) purchase fresh inventory with focus in the next 2-3 months of seasonality (summer months). Convertibles, and other summer vehicles can be considered (within reasonability).

4).- Redesign the incentives and pay plan to align them with the dealership profit objectives, not allowing to have over 90 days units in stock, since rarely -or never- seems to make sense.

5).- Not allowing the total inventory in $ to surpass current levels, as to not break covenants with the bank and hurt the cash flow, and keep the inventory turning (also a capacity constrain).

6).- Weekly productive meetings reviewing the oldest units in inventory. The Pre-Owned manager needs to take the oldest unis in stock as a demo at least 2 weekends of the month to assess saleability.

“Ideas are a dime a dozen execution is all that matters”.

My firm expertise is to provide the assistance needed to execute these ideas.

Gabriel Krozkin, CPA, CGA support dealerships and group of dealerships to achieve and surpass profit goals, working with franchised dealerships. Contact him for a Free profit improvement review to see how he can help your dealership. Contact Gabriel at info@krozkin.ca

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