COMMENTARY: What dealers can do today to prepare for post-COVID-19 world
The magnitude of the COVID-19 pandemic has left businesses across the country — and world — in uncharted waters.
As we all try to process how quickly the world has changed over the last several weeks, one question at the top of my mind is: What can we do today to position ourselves for the best chance of recovery?
With dealership lots full of cars, reduced demand and fewer consumers in the market, there are steps that dealers across the U.S. can take now to position themselves for the best chance of recovery in the months ahead.
Ultimately, the goal is to reduce inventory expense while generating cash to provide flexibility — either to support overhead or to buy opportunistically as the market begins to return.
First, evaluate your entire portfolio of assets.
- Before you can make any decisions, you’ll want to have a solid understanding of your inventory. First, group your inventory by the number of days it has been sitting in inventory: 30, 60, 90 and 120-plus days.
- Next, look at your floorplan cycle. How many curtailments have you paid, and when is the payoff due? Notate this information for each vehicle.
- Finally, further segment your inventory into price buckets: under $10,000, $10,000 – $20,000 and so on.
Next, dispose of costly inventory.
Once you have a complete understanding of your current portfolio, dispose of “costly” and aged inventory now to lower holding costs and minimize further losses. While volumes are lower in the wholesale space right now, some dealers are still buying cars. Leverage the various promotions offered through wholesale digital channels.
- Liquidate aged inventory, as well as any vehicles on their final curtailment payment immediately.
- Lower or eliminate the number of used vehicles you have in the higher price buckets, as these will be the costliest — and most risky — to hold onto right now. These are likely to be your later-model-year vehicles (2018-2020).
- Price vehicles aggressively to ensure quick liquidation and take advantage of the limited wholesale buyers in market. Sometimes it is necessary to take a loss rather than face worse outcomes. As Dale Pollak wrote in his recent letter to dealers, cash is king right now.
Once stores get back to near-normal operations, there are a few more steps you can take to ensure the best possible outcome.
- Evaluate current consumer demand and stock accordingly. A lot has already changed since the pandemic dampened the economy, so the trends on which vehicle types were in demand before may not hold true in the future.
- Push new car specials and offers from manufacturers. OEMs have been ramping up incentives to move their inventory, and these are likely to continue. Promote these heavily through all of your advertising and marketing channels.
- Independent dealers should evaluate third-party CPO programs to compete with franchise dealers. Consumers will likely be looking for an extra boost of confidence in major purchases—especially for used cars. The extra layer of protection that an in-depth inspection and warranty provides may help close the deal.
- Think wholesale as you retail to bolster trade-in valuations. Knowing your exit strategy on a trade-in — whether you’re going to retail it or wholesale it — can help you make more informed trade-in valuations. For vehicles you plan to wholesale, be sure to understand its latest valuation so you can make an informed trade-in offer. And for vehicles you believe you will be able to retail, be more aggressive on the trade-in offer to help close more retail deals.
Right now, the road to recovery looks long, and we’re all trying to figure out what the new normal will be in the automotive industry. But smart decision making, backed by data, can help you weather the storm.
Majd Saboura is senior director of offsite solutions at Manheim.