Many auto dealers have procedures in place to track dealership efficiency and profitability. For example, most dealers keep a careful eye on their monthly sales and overall revenue. However, those looking to further optimize business operations in conjunction with their independent auto dealer floor plan should consider monitoring a few other key metrics.
Vehicles depreciate the longer they’re around. Holding onto inventory for too long can tie up dealership cash flow. In addition, if a dealer paid cash for that vehicle, their initial cash investment decreases with the car’s depreciation. Take a look at your lot. How many vehicles have been there for three months or longer? Consider developing an aged inventory exit strategy for those vehicles to stave off further depreciation.
A dealer’s turn time is the average time a car stays on the dealership lot, and how many times a year a dealer can sell their entire lot. For example, if vehicles on a dealer’s lot stay for an average of 40 days, a solid estimate would be that dealer turns their lot 9 times a year. Tracking turn time can help dealers monitor the overall health of their dealership.
Dealership Holding Cost Per Day
Keeping a dealership running comes at a price, and every car on a dealer’s lot incurs costs, despite whether a vehicle sells or not. To truly get an idea of how much it costs for your dealership to keep a vehicle per day, you’ll need a solid idea of your monthly expenses. An estimate of your dealership’s holding cost per day can help guide operational decisions. For example, how long to hold on to inventory before taking it to wholesale at auction.
Keeping tabs on these measurements can help dealers effectively understand how they currently manage inventory and cash flow, and how they can potentially use the additional cash flow flexibility from an independent auto dealer floor plan to further optimize business operations.
Don’t know how to calculate your turn time or holding cost per day? Walk through three floor plan financing formulas every dealer should know to see where your dealership currently stands. If you have more questions about how to use this information to benefit your dealership, click here, and we’ll connect you with your local representative!