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Efficient retailing: Used car stock policy

In the sixth of our series of insights into running an efficient dealership, Thurlby Motors managing director
Chris Roberts looks at used car stock policy

Having the right level and mix of stock is imperative for any high street business.

Ask any good retailer in any sector and they will all tell you that efficient stock control is paramount to success and profit.

Our industry is no different and used car stock control is one area of the business that is vital to success, but overlooked by many.

Over the years, I have run many best practice clinics and as a rule of thumb at least one third of attendees would have no formal used car policy in place, often having vehicles within days of a “birthday”.

When questioned why cars this age were still in stock, the majority responded by claiming they were “going to retail out of it” but, clearly, if a car has not sold within a reasonable period – say 90 days – it’s probably the wrong stock for the business.

Too much or too little stock is damaging, so how do you know the right level for your business? If you establish your average annual sales volume (units) and apply an eight times stock turn, this gives you a clear stock requirement.

For example, if your average annual sales volume is 400 units, a stock turn of eight times per annum means
you would need to hold 50 units (400/8) in stock.

Obviously, you can adjust the figures to fit your own business, but eight times turn should be a minimum.

What’s the cost of overstocking? Well, if you work on some basic assumptions, an average unit price of £7,500, an overdraft/stocking interest of 8% and just a small write-down of £150 per month, an excess of 10 units would cost you £24,000 per annum.

You are unlikely to sell consistently ahead of your average stock turn so don’t kid yourself into thinking more is better.

Now add into this any over-age issues. As an absolute minimum no stock should be kept for more than 90 days. Why?

Well, think of it this way – you’ve had a car for 90 days and had your hard-earned capital tied up and costing you interest.

Using the same unit value as before and assuming you have 10 over-age units, you’ve tied up £75,000 of cash.

As these units are over-age, they have generated no income for three months, just cost, and the stark choice is to either hang onto them in the vain hope they will sell or replace them with saleable stock which can be turned into profit.

The important factor in the decision to replace the over-age units with saleable stock is the fact that good retail stock can be turned every 45 days (eight times per year) and at an average profit of £1,000 per unit should more than outweigh any losses made getting out of the older stuff.

A good stock and ageing policy is vital to your success and businesses without one risk losing control of their customer offering and their cash. If it’s over-age, replace it.

 

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