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Margin or days in stock – which is the better used car yardstick?

By Philip Nothard

Is it wiser to focus on maximum margin or swiftest stock turn? The truth is there is no simple answer.

     
 
 

Philip Nothard joined CAP in 2010 as its retail and consumer price editor, analysing pricing data and interpreting strategic market trends. In his role, he is able to apply two decades of experience gained in franchised motor retailers, which culminated in running dealerships for the likes of European Motor Holdings, Lythgoe Motor Group and Arnold Clark.

 
 

Let’s look at one of the most common industry formulae – dividing days in stock by average gross margin. If you aim for a stock turn of 45 days, and an average gross margin of £1,500 – then a technically over-age car is damaging profit and that’s a problem. But how many dealers in the network really use this method to watch all stock daily, or is it triggered only when a vehicle crosses the line?

At what stage is a vehicle over-age? The Vauxhall Corsa SXi’s average days in stock across the industry is 26 days. Is it therefore instantly over-age at 27 days?

For the Volvo S80, average days in stock is 73 days. Is it over-age at 74 days? And if you run a 60-day policy, doesn’t this mean that the average S80 is always over-age?

Do you use over-age policies just to keep the accountants happy?

In my dealer years, I worked with various over-age policies, so I understand the value of benchmarking in this way to highlight potential risk and keep the accountants happy. What is certain from my research today is that even small dealers are more sophisticated than they are sometimes given credit for when it comes to scrutinising time in stock for each car – and adjusting the advertised value accordingly.

Looking at CAP’s own data detailing the frequency of retail price adjustments, changes are made on average every 20th day and by an average £365. If we review the graph (right} which details the relationship between the days after which prices are adjusted and the value by which they are altered, on average, across all the sectors, prices are being changed every 20th day by as much as £365.

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