April, 30 2020

The Hidden Costs of Unsold Inventory

Ivan Mishanin
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Running a dealership successfully requires a strong stock of new car models boasting the latest designs, features, performance, and efficiency.

But sometimes you end up with cars two or even three model years old — that are still essentially brand new vehicles — sitting on your lot. Sure, some buyers may appreciate a nearly zero-mile not-quite-new car because it offers lots of savings and not much tradeoff.

What it means for your dealership, though, is a lower margin, because the longer a vehicle sits on your lot unsold, the more costs it racks up: overhead, storage, maintenance, etc.

So how can you keep an eagle eye on your inventory to make calculated decisions that help move stale cars off the lot so you can sell the newest of the new?

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Unsold Inventory and What It Means for Your Dealership

Dealership inventory management helps you avoid the troubles of unsold inventory

If you’ve operated a dealership for a while, then you probably know that unsold inventory can cost your business a lot of money. Although cars can last many years, they still have a limited shelf life at your dealership.

Unfortunately, many dealerships get stuck with unsold inventory, particularly at the end of the year. When a new model of a vehicle becomes available and the manufacturer starts advertising it, customers often want to buy that model instead. In other words, dealerships often end up being able to sell new models easier even at a higher price while being stuck with older models.

When managing hundreds or thousands of vehicles, it can be difficult to keep track of everything. The good news is that proper dealership inventory management, planning, and tracking can help reduce the risk of having unsold inventory negatively affect your bottom line.

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How Dealerships Deal with Unsold Inventory

Dealerships typically use a few tactics to get rid of unsold inventory.

Transfer to a New Market

The first option is to ship unsold inventory to markets where such vehicles may be in demand. For example, some dealerships in other counties or states — sometimes even countries — may have a shortage of vehicles you want to get rid of. Sending them your inventory can be a win-win for both parties, but these deals are not always as profitable as selling directly to the customer. Plus, it cuts out opportunities for your sales teams to make their living.

Rental and Fleet Sales 

Some vehicles could be sold to rental agencies, or to other types of fleets, at a deep discount. If the amount of unsold inventory is not excessive, sometimes unsold vehicles are used as loaners.

Unsold vehicles await their new home

Dealer Auctions

Another option is to sell the vehicles at auction. This option can be a good way to get rid of your unwanted inventory quickly. However, the downside is that you often will get way less money than if you had been able to sell at full price — and you miss out on the profits earned through finance and insurance. Additionally, some of the funds go to the auction house for their services, further reducing your sales income. You also have to consider the man-hours involved and the costs of shipping your vehicles to the auction house.

Deep Discounts

Finally, dealerships often price cars to sell so that older models don’t compete with newer models. Reducing price can be a good way to attract people who are price conscious, but ready to get a new vehicle. Yet now you’re cutting your profit margin even further, and again limiting the money you’ll make in the financing office.

If you’ve dealt with unsold inventory before, then you know that all of the above options lead to significantly reduced profits and possibly even unwanted business losses. Fortunately, you could avoid having too much unsold inventory with good inventory planning and a car dealer inventory management platform like Zurich Connected Cars.

Let’s explore how better vehicle inventory management can help control inventory levels.

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Solution: Automated Dealer Inventory Management

To effectively compete with other dealerships, you need a good inventory tracking system. When looking for an inventory management system, you will want a system that has the ability to search for vehicles by their Vehicle Identification Number (VIN), make, model, stock number and any other important identifiers. You will also want a system that allows you to conduct inventory audits quickly so you can plan sales and promotions in a timely manner.

Instant Reporting

Zurich Connected Cars provides instant reporting, allowing you to filter your entire inventory to be able to instantly see how many vehicles of a particular make, model and/or year that you have in stock. You can also search for individual vehicles by VIN, mileage or other indicators.

Being able to quickly view data on your inventory will allow you to plan sales more easily and also prevent your dealership from ordering too much inventory. Sorting by model year and mileage can help you prioritize the vehicles you need to get off the lot so that they can be replaced by newer, higher-priced vehicles.

Zurich Connected Cars offers the option to run a daily, customizable report so you can set one up specifically focused on tracking vehicles that have been sitting on the lot for too long.

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Reduce Inventory Audit Times

Inventory audits are necessary to make sure your inventory is accurate and that your vehicles are in good condition. Manually performing inventory audits can take days or even weeks, which can reduce your productivity and slow down your operations.

Our system allows you to locate all of your connected vehicles instantly with GPS and provides critical data including VIN, mileage, fuel/battery levels and more. Using a system like ours can reduce the time required for inventory audits from days to just a few hours so that you can focus on planning your next sale.

When you save time on auditing your inventory, you can use those extra hours to analyze unsold, stagnant inventory. Do they need a price reduction? Can you better market them? Should they be pulled around to the front of the lot for better visibility?

Expedite the Sales Process

Another way Zurich Connected Cars supports your business is by expediting the sales process and increasing the chances that a vehicle will be sold. With our system, you can instantly locate any vehicle. Without a connected car system, the average time to locate a vehicle can take 15, 20, even 30 minutes or more, which can result in bad customer experience.

The connected adapter can also alert you when vehicles are low on fuel or battery charge so that you make sure your vehicles are ready for your sales team. Making sure your vehicles are sales-ready may help your salespeople clear the lot to make room for new inventory.

If you’re selling more cars every month, the potential for unsold inventory decreases — and you may see more money on your bottom line.

Get Connected — and Get Rid of the Frustrations of Unsold Inventory

If unsold inventory has you concerned, then a connected car inventory management system like Zurich Connected Cars may help.

We’re confident that once you see our example calculations on how much you could save that an investment in the Zurich Connected Cars system will be a no-brainer for your dealership.

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Contact us to get connected and make unsold inventory woes a thing of the past.

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