When something depreciates, it diminishes in value over time. As personal car ownership continues to decline, car dealerships are saddled with inventory depreciation as new and pre-owned vehicles remain unsold on the lot, diminishing in value every day. If you’re a car dealership owner, HyreCar has compiled 8 ways to answer the question, “How can I reduce the number of aged vehicles in my inventory?”
1. Minimize Inventory Age and Keep Your Inventory Fresh
Consumers buy fresh milk, not expired milk, right? Well, cars may not have an expiration date, but newer, fresher inventory will always attract potential buyers more than older vehicles. Concentrate on retailing as close to 50% of your inventory within 30 days of it arriving on the lot. This will help maximize your front-end gross. Time equals money, so the more time a car sits on the lot, the less money it’s worth, which decreases your gross profit potential. Plus, creating more inventory turnover in a shorter period of time will help your used car department reach its “turn and earn” goals.
2. Lower Your Holding Costs
- What is holding cost? Holding cost is the amount of money it takes per unit to keep and maintain your inventory. On average, the holding cost of a new car on the lot is about $40 a day, and $85 for a pre-owned.
- Can holding costs vary? They sure can, thanks to changing operating expenses, floor plan fluctuations, and the cost of capital, including interest rates. All of these factors contribute to a dealership’s carrying costs.
- To prevent holding cost erosion, minimize your inventory’s age, as discussed above. Also, recondition pre-owned vehicles to sale-worthy condition as soon as possible. The faster pre-owned vehicles are on the front line, the faster they’ll sell.
- To find out how to calculate holding cost, check out this calculation tool.
3. Make inventory Adjustments Based on Car Market
- Research what’s selling in the new car or used car market in your area. If SUVs and trucks are the better performing models, really push to get them in your inventory.
- If you’ve got a particular make or model that’s scarce, say a luxury SUV that’s in higher market demand than a competitor’s luxury SUV, price it for profitability. Consumers will be willing to pay you more to get a vehicle that’s hard to find.
4. When it comes to inventory turnover, set a strict 45-day inventory turn policy
- In the past, dealers would let unsold cars sit on their lots for 90, even 120 days. The standard is now 45 days before a vehicle loses its front-end profit potential, due to rising vehicle costs, price competition, depreciation, and holding costs. If you can’t sell a car within 45 days, you might want to reevaluate its price point in order to move it off the lot faster. Some dealers re-price vehicles weekly using available software.
5. Be aware of your average inventory costs
Older, pre-owned models should be priced much lower than new vehicles to avoid self-caused competition. In other words, a pre-owned vehicle priced around $30,000 will be in direct competition with one of your new cars in the same price range. Track your inventory and reduce the prices of pre-owned cars to the $14,000 and up range. The lower price will act like a magnet, drawing potential consumers to your lot, allowing you to turn over inventory at a much faster rate.
6. Keep at least 50 percent of your inventory under 30 days old
- This will really take advantage of your used car department’s return on investment, also known as ROI. Plus, it will provide you with a steady stream of fresh vehicles to get on the sales line. By the way, dealers who price aggressively based on the market should have no problem hitting the 50% mark.
7. Rent-to-Own Programs
- More and more car dealerships now offer programs that feature rent-to-own vehicles, which helps rideshare drivers eventually own the car they use for work.
- Rent-to-own programs allow drivers to rent a car from the lot, and then use a percentage of their Uber or Lyft driving earnings towards a down payment on their future vehicle.
- Rent-to-own programs are successful for both car dealers and drivers. The driver earns enough cash to own the vehicle they’re using for work, and the dealer makes a sale. Winner winner chicken dinner!
- A great example is the rent-to-own program that HyreCar is offering through Sansone Jr.’s Automotive Group in New Jersey, Pennsylvania and New York. Rideshare drivers can contribute a portion of their rideshare income toward a down payment on the vehicle they’re renting. It’s a fast path to ownership. The program also offers a free credit repair program to drivers for four months. Plus, rideshare insurance is included with every rental.
8. Use HyreCar and Leverage Mobility as a Service
Mobility as a Service, also known as MaaS, is when various kinds of transportation services are combined into one on-demand shared mobility service, usually accessed through an app or a website. Since owning and maintaining a private vehicle is becoming more and more expensive, MaaS is playing a big part in the shared mobility industry, especially when it comes to carsharing. This is why it’s the perfect time for car dealers to jump on the mobility as a service bandwagon.
- Carsharing is a fast and convenient way that rideshare drivers looking for a vehicle to rent can get behind the wheel of a quality car with very little hassle or waiting time. 900,000 Americans use carsharing every year, so that’s a market that your dealership should tap into.
- Forward-thinking car dealers are no longer sticking to strictly selling cars or renting them for just short periods of time. Instead, dealers are diversifying their revenue streams by renting their underutilized inventory to rideshare drivers on a monthly or long-term basis. This is how car dealerships are taking advantage of the shared mobility economy at no added cost to the dealer or consumer.
- As more and more prospective rideshare drivers ask “Can I rent a car from your dealership?”, make sure your marketing department makes it known to the public that the answer is an emphatic “yes.”
Let’s say you have vehicles that are two years or older sitting unsold on your lot. HyreCar makes it possible for you to list those cars for rent to drivers in less than 24 hours, in all 50 states. It’s time to turn your underutilized inventory into a new stream of revenue. Uploading your rentable inventory is free and super easy. Why wait? Get started today and watch your revenue grow.
Nobody wants anything they own to depreciate in value. When it comes to cars sitting unsold on a dealership lot, depreciation hurts business. We hope we’ve given you some good ideas to turn that depreciation around using market research, inventory turnover, and renting to rideshare drivers in the world of mobility as a service.