Car Dealership Inventory Sitting on the Lot

A successful dealer is someone that can simply turn inventory into profit. However, ensuring that a dealer can remain successful depends on the answers to the two questions: how much car dealership inventory should a dealer stock, and how many sales should a dealer be making per month based on the units they have in stock?

How many units should a dealer have on the lot?
In order to determine how much car dealership inventory a dealer should have on hand, it would be good to have an idea of realistic monthly sales goals, and an anticipated turn time for units. Let’s say a dealer wants to sell 30 vehicles per month, and their average turn time is 60 days. A 60 day turn time means a dealer turns their lot 6 times over the course of the year. Using these numbers, a dealer should be able to figure out the best number of units they should stock based on their goals. Take the number of monthly desired sales and divide it by the lot turn time. Then, multiply that number by the number of months in the year.

Monthly Desired Sales    30
Total Yearly Lot Turn (Assuming a 60 day average turn time)    ÷ 6
Months in the Year    X 12
Optimal Inventory Stocking Number    = 60 Units

Using this formula, this dealer would need to stock 60 units based on a desired sales goal of 30 vehicles per month and a 60 day turn time.

Based on current numbers, how many sales should a dealer be making?
Current sales numbers in conjunction with current car dealership inventory can help to determine of if current sales goals indicate realistic benchmarks. Let’s say a dealer currently has 70 units in stock. Based on that number, how many sales should this dealer be making per month? Multiply the current number of units in stock by the average inventory turn time. Then, divide that sum by 12, the number of months in the year.

Units in Stock    70
Total Yearly Lot Turn (Assuming a 60 day average turn time)    x 6
Months in the Year    ÷12
Optimal Number of Sales Per Month    = 35 Units

In this scenario, this dealer should have the goal of 35 sales per month based on the current number of units in stock and average turn time.

Though these numbers might fluctuate for individual dealers, in the long term, knowing the answers to these two questions will help dealers ensure they have the right balance of cash flow and inventory each month.