The centralized inventory system currently being implemented at Sonic Automotive is what executive vice president of operations Jeff Dyke says is going to “change our whole company.”

Thus far, about 40 of its 119 dealerships are now using the Sonic Inventory Management System (SIMS), a new tool the company has spent more than three years developing. Dyke told Auto Remarketing all stores should be on the system by the end of the first quarter of 2013.

“What it allows us to do is to have real-time data information to make good business decisions,” Dyke said about the solution built by Sonic, the fourth-ranked retailer on Auto Remarekting’s list of the Top 125 Used-Car Dealer Groups.

Instead of a used-car manager appraising a vehicle on the lot, unit details now will be transmitted to Sonic’s headquarters and analyzed against reams of other data. When the system is running optimally, Dyke believes the appraisal can be sent back to the store within three minutes.

“If you know anything about the automobile business, a Black Book and a real experienced used-car manager was the way you managed inventory forever and ever,” Dyke stated. “We didn’t use data as well as we could to make business decisions. Over the last couple of years we’ve been building SIMS to put us in a position to make that all come to life.

“Right now, you’re pricing cars based on what each individual store feels those cars should be priced at versus data, sales history and kinds of data that we can have to make pricing decisions and to have it in an organized controlled environment,” he continued.

About a year ago, Sonic started a user acceptance testing phase, picking about 13 stores to install the SIMS platform. Dyke explained the company worked out some initial kinks and then a few months later integrated an additional 23 dealerships into the system, mainly Sonic’s Texas locations.

Now beginning on Tuesday, Dyke indicated Sonic will begin to launch SIMS at its remaining dealerships, starting on the East Coast and working west with the goal of having the system humming throughout the group by the close of the 2013 first quarter.

“I believe we’re going to see some ups and downs in our performance during that time because we’re really moving everybody’s cheese,” Dyke admitted. “It’s a complete different way of doing business.

“You can imagine being a used-car manager in the store and you’ve priced cars and done things one way for 30 years and now all of a sudden I’m going to come in and start telling you here’s how we price a car,” Dyke continued.

“Here’s why we’re pricing it there. We’re studying the elasticity of pricing. We’re studying why different cars are selling well in one market versus another. We’re moving cars all over the country," he added. "It’s a very complex, complicated process, but we know once we get it put in place it’s going to put on us par with retailers that manage their inventory like a Walmart, Auto Zone, these big retail companies that use data to make great business decisions.

“Quite honestly, the automobile business just has not done that in the past,” Dyke noted.

Potential Impact to Sonic’s Bottom Line

Sonic Automotive generated the largest used-vehicle retail volume in company history during the second quarter, as the company’s dealerships turned 27,528 units, up from 26,799 units in the year-ago span.

That record figure averaged out to be a little more than 9,000 units per month or about 87 vehicles per store. Dyke believes Sonic can hit 12,000 used-vehicle retail sales monthly through SIMS.

He also calculated that instead of Sonic posting a 4-percent gain in used-vehicle revenue as the company did in the second quarter, the group could be on pace for 10-percent, maybe even 15-percent revenue growth.

“We’ve got a lot of upside that we’re really excited about and can bring a lot of profit to the company,” Dyke declared.

Dyke also explained how implementing SIMS is a better way of using Sonic’s resources rather than just buying more stores.

“For the last four or five years, we have not bought any stores because we felt there was so much internal growth potential,” Dyke said. “With all of the stores we have, we wanted to get everything we can out of those before we added another store into our culture and our environment.

“When you go out and spend money on a dealership group, you’re paying, five, six, seven, eight times earnings,” he continued. “For us, we’re looking at investing in technology where we’re not paying as much as we would pay for a dealer group but the returning on it is anywhere from 40 to 45 percent ROI, maybe 50 percent depending on how well it works.

“What it’s going to allow us to do is once we get this rolled out is in the future if we start buying stores again, it’s like taking a piece to a puzzle and plugging it in,” Dyke went on to say.

Dyke pointed out that Sonic’s scale makes the potential for SIMS possible. He added that the leading used-vehicle retailer CarMax can turn more units than any dealer group because its “systems are far more sophisticated than anybody else’s.”

Dyke believes Sonic is well on its way to successfully competing against any public or private dealer group nationwide.

“It’s going to change our whole company,” Dyke reiterated about SIMS. “The whole dynamic of how Sonic Automotive looks today and what things look like over the next 24 months is going to significantly change. We’re going to sell a lot more cars and make a lot more money.

“We catch a little bit from the Street today saying, ‘Your margins are a little lighter and not quite growing like you were.’ But to us, we’re just sitting back and smiling because we know what’s there. We know the opportunity,” he continued.

“It’s like being a swimmer in the Olympics and retooling a stroke so you can get faster,” he went on to say. “Sometimes you’ve got to slow down before you can speed up. That’s what we’re doing. It’s a great investment for our company. Our company is so excited about where we are and where we’re headed.

“At the end of the day, we’re going to have a competitive advantage when this is implemented,” Dyke concluded.