I’ve been hearing a similar concern from ProfitTime GPS dealers in recent conversations: “I need more Platinum and Gold vehicles to get my average front-end gross profit back on track.”
The concern generally follows two realizations:
- Bronze vehicles—the ones ProfitTime GPS identifies as the units with the highest risk and lowest profit or ROI potential—make up about 40 percent to 50 percent of the dealers’ inventories. When dealers view the average mark-up and days to sell for these vehicles, they can see the front-end gross profit they’re likely to make is significantly lower than other vehicles, and less than what they’d like.
- Platinum and Gold vehicles—the ones ProfitTime GPS identifies as the units with the least risk and highest profit or ROI potential—tend to make up about 15 percent to 25 percent of dealers’ inventories. The dealers can see these vehicles have the richest mark-ups that should offer significantly higher front-end gross profits when they sell.
With this backdrop, it’s completely understandable that dealers would want to stock more Platinum and Gold vehicles. They might even direct their appraisers and buyers to do a better job of bringing in Platinum and Gold vehicles, while encouraging them to avoid Silver and Bronze.
When I hear the concern, it raises a red flag.
In my view, dealers should not be appraising and acquiring cars to engineer the previous metal composition of their inventories. To be sure, there’s nothing wrong with establishing precious metal targets to guide how appraisers and buyers value and bring in cars. But such targets should be the starting point, not necessarily the end point, for used vehicles, especially when they’re coming from trade-ins.
That’s because dealers should be focused on acquiring the cars they need, and appraising cars to make deals. We know the circumstances around individual customers and cars are always different. Hence, it can be counterproductive, and even dangerous, when dealers try to fit every car into a specific precious metal parameter.
Instead, I advise dealers that it’s far more important to treat every vehicle you bring in exactly how it should be treated. If it happens to be a Silver or Bronze car, ProfitTime GPS’ pricing recommendations will help you retail it quickly to realize its optimal profit or ROI potential. Better still, when Silver and Bronze vehicles are properly handled, they’re great cars. They typically represent volume cars that offer an F&I opportunity and keep your sales teams moving. Meanwhile, if you’ve got a Platinum or Gold car, ProfitTime GPS’ pricing recommendations will encourage patience to give the vehicle the time it needs to make its maximum return.
When dealers follow this operational discipline, the precious metal composition of their inventories takes care of itself and every used vehicle they own gets its best shot to make money.
The post ProfitTime GPS in Practice: Don’t Worry About the Precious Metal Composition of Your Inventory appeared first on Dale Pollak.