Falling residual values mean that retailers with a 60- or 90-day used car stocking policy will be saddled with vehicles they cannot sell for a profit. Cars must be sold within 45 days or moved on, say industry experts.
Retailers need to be monitoring sales more closely and embracing technology to ensure cars are sold quickly and replaced with a suitable alternative. Some have already taken action.
Robert Marshall, executive chairman of Marshall Motor Group, believes dealers have to be “brutal” in this environment of falling residuals and slowing used car sales.
“We rigorously keep to a 45-day write-down policy and we buy to sell,” he says. “You have to speed cars through the system, which includes taking account of prep time. You can’t afford to keep cars more than 45 days because the value is gone.”
David Hughes, UK sales development manager of Autovista, which advises the motor industry, says keeping stock for 60 or 90 days is an outdated approach.Hughes said: “What dealers need to do is look at their cars and trends in the market. I would say a traditional stocking plan of 60 or 90 days is actually outdated.
“I think most groups use a 60-day plan, but in the current market with cars depreciating quickly, dealers need a quicker turnaround.”
Autovista offers used car dealers a software package which predicts how long it will take to sell a particular vehicle so dealers can monitor their stock closely.
This has revealed that on average a Vauxhall Corsa, for example, sells within 29 days.
Hughes said a lot of dealers think the internet makes their job harder, when they should be using it to their advantage by checking prices and analysing the market to see what
is selling and choose their stock accordingly.
Successful dealers, he said, are the ones constantly monitoring sales. Keeping vehicles for 30 days was preferable to the traditional 60.
Adrian Rushmore, managing editor of Glass’s guide, which lists vehicle valuations, said stocking policies should vary depending on vehicle type. A £100,000 Bentley Continental GT could take longer to sell than a £4,000 Ford Fiesta, for example.
Rushmore suggested dealers using a 45-day policy should be careful because of the rate at which used car prices are falling.
He said: “There is no need to change the 45-day policy necessarily, but there is perhaps a greater requirement to monitor the prices of used cars more frequently than they would in the past.
“Because dealers have suffered with prices falling, they have learned their lesson the hard way and are much more vigilant with their stock and are frequently reviewing used vehicle pricing.”
Although Rushmore felt he could argue stock policy could be reduced from 45 to 30 days he felt assessing sales weekly and making changes before this deadline could be a better approach.
- Read this story in full in the 17 October 2008 issue of AM. To subscribe to AM magazine click here or call 01733 468659.