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Tuesday, March 13, 2018

Time to Increase the Focus on US Inventory Turn

Time to Increase the Focus on US Inventory Turn

Inventory turn levels across US franchised auto retailers typically equate to around 65 days’ worth of sales. Compared to other markets across the world in which inventory software experts Sword Apak operate in, this is relatively high, and it is an area that Jeff Bunch, VP of Global Sales believes dealers should be looking to address.

He notes, “Inventory days across the US have remained broadly unchanged over the last 50 years; however, based on our latest analysis, the market has softened, and inventory days have started to rise".

Bunch attributes the high inventory levels to several factors; larger dealerships, the growing range of vehicles and a widening selection of fuel variations. However, more notably he points to the aftermath of the successive years of growth, resulting in a reduction of inventory turn focus and the product push of manufacturers as they seek to smooth production output, as the key factors.

Without dealer action, this is not a trend that is set to diminish according to Sword Apak’s analysis, especially with new auto volumes set to fall back in 2018, more dealers could be holding an increased amount of new stock.

Over recent years, high inventory levels have been viable due to strong demand, but despite customer sentiment jumping to its highest level since February 2001, Bloomberg Consumer Comfort Index, published on February 14th, suggests other factors point to the value of a more dynamic approach to stock management:

  • The Federal Reserve’s forecast for three rate hikes in 2018, as it looks to dampen the availability of credit;
  • Consumers hanging onto vehicles for a longer period as they benefit from increasing reliability;
  • The increased profitability of vehicles sold in their first 30 days.

Bunch concludes: “Interest rates are clearly outside of a dealer’s control and vehicle ownership can be addressed by marketing, but the third point made by the Bloomberg Consumer Comfort Index is all about better inventory leadership in the showroom. Here in the US and our other markets around the world, every piece of analysis shows us that when it comes to inventory, the old line; ‘time is money’, is as true today as it has ever been.

“For used vehicles, there are opportunities to reduce inventory days; buy right with a consistent flow of used stock to an agreed specification that works for the dealership; get stock retail-ready faster; start marketing online as soon as possible - three very actionable tactics that can help. Above all, target 30-day inventory for used vehicles aggressively, it can be an obsession that benefits the bottom-line”.