Velocity Beats Margin: The Inventory Mistake Costing Dealers Millions
A lesson that cost me a lot of money to learn...
When I first got into the car business, I thought the goal was simple.
Buy every car as cheap as possible.
I'd spend hours negotiating. I'd chase deals all over the country. I'd beat someone up for another few hundred dollars and feel like I won.
Then I'd park the car for 90 days.
At the time, I thought I was a genius.
Looking back, I was completely missing the bigger picture.
Because the truth is, the car you make $3,000 on and keep for 90 days is often far less profitable than the car you make $1,500 on and sell in 10.
The longer I've been in this business, the more I've realized that velocity beats margin.
Every single time.
The Math Dealers Ignore
Most dealers know exactly what they own a car for.
Most dealers know exactly what they sold it for.
Very few dealers know what that car actually cost them while it sat on the lot.
Floorplan expense.
Advertising expense.
Reconditioning expense.
Employee expense.
Opportunity cost.
Every day a vehicle sits, it gets more expensive.
Yet many dealers continue making inventory decisions based solely on acquisition cost.
The question shouldn't be:
"Did I buy it cheap enough?"
The question should be:
"How quickly will this sell?"
Those are two completely different strategies.
Fast Inventory Creates Cash
Cash is oxygen in a dealership.
The faster you turn inventory, the more cash you generate.
The more cash you generate, the more opportunities you can take advantage of.
The more opportunities you can take advantage of, the faster you grow.
I've watched dealers spend weeks trying to squeeze another $1,000 out of a retail customer while completely ignoring the fact that selling the car today would allow them to buy and sell three more vehicles this month.
The obsession with maximizing every deal often destroys overall profitability.
The best operators understand this.
They don't focus on winning individual transactions.
They focus on winning the year.
The Dealers Winning Today Think Differently
The dealers I respect most aren't always the ones showing the biggest front-end gross.
They're the ones with disciplined inventory management.
They know what sells.
They know how quickly it sells.
And they price inventory to create movement.
They understand that stale inventory becomes expensive inventory.
They understand that speed creates options.
And they understand that cash flow is often more important than ego.
If I Were Starting Over Today
If I was opening a dealership from scratch tomorrow, I would focus less on maximizing gross profit and more on maximizing inventory turns.
I'd measure age relentlessly.
I'd price aggressively.
I'd remove emotion from inventory decisions.
And I'd constantly ask myself one question:
"Would I rather have this car or the cash?"
Because at the end of the day, cars don't build businesses.
Cash flow does.
That's a lesson that took me thousands of cars and more mistakes than I'd like to admit to learn.
Hopefully it saves somebody else a few years.
-Jared Wheeler, Founder at Keysy.com