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The Impact of COVID-19 on Inventory Management

The following discussion focuses on inventory management for new and used vehicles, and how this impacts dealership operations.

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The following discussion focuses on inventory management for new and used vehicles, and how this impacts dealership operations.

Background

Inventory management is an important concept for auto dealerships. While the software and method can vary between businesses, the underlying goal is the same: create a systematic approach to tracking inventory as it is bought, stored, used and ultimately sold.

Numerous states issued stay-at-home or shelter-in-place orders that impacted all aspects of a dealership business from car sales to service orders to financing. While it is safe to say that the automotive industry as a whole has been negatively impacted by coronavirus, it is not as clear what this means for dealership inventory management.

Although most aspects of an auto dealership business have experienced the effects of coronavirus, some areas have been impacted more significantly than others. The following discussion focuses on inventory management for new and used vehicles, and how this impacts dealership operations.

Inventory Management

Most manufacturers were impacted by stay-at-home or shelter-in-place orders of varying degrees. As a result, factories were shut down and new vehicle inventory was no longer in production. Although manufacturers are slowly getting production back to normal levels, the shutdown resulted in a reduced supply of new vehicle inventory for auto dealerships.

Individuals looking to purchase new vehicles also experienced the effects of the shutdown considering that dealerships were operating with lower supply levels. Given the lower allocation of new vehicles, there was less pressure on dealerships to turn over new inventory to make room for future deliveries. This resulted in fewer purchase incentives that are customary to the industry such as 0% financing or cash rebates. Dealership management could be less likely to give purchase incentives as one way to address lower supply levels from the manufacturer.

Dealership management must consider whether it makes sense to increase the supply of used vehicles in order to offset the decrease in new vehicle supply. For example, if a dealer’s inventory is typically allocated 50/50 between new and used inventory, they should consider deviating from the norm in favor of stocking more used vehicles. Many of the individuals that are in the market for a new vehicle might purchase a slightly used vehicle instead. As a result, it could be a good idea to increase the stock levels of slightly used and certified pre-owned (CPO) vehicles.

Increasing used vehicle inventory levels is easier said than done. Considering the decrease in new supply levels, customers might postpone a purchase—which would result in less used vehicles being traded in. Management must utilize alternative methods when it comes to purchasing used inventory.

  • It could make sense for a dealer to expand its normal geographical market when it comes to purchasing vehicles at auction. Although an individual dealer might be struggling to find used inventory, other areas of the country might be experiencing a surge in the number of vehicles sent to auction. This could lead to depressed values that provide good opportunities for dealers. Even when considering transportation fees, there is potential for dealership to find the right vehicles at the right price.
  • A dealer should also consider new methods of acquiring the used vehicles. For example, if a dealer typically relies on trade-ins and auctions to stock used inventory, they should consider using social media, email campaigns or direct mailers as means to reach potential customers. Now is a good time to revisit customary policies to determine if other methods make sense.

Conclusion

Individual dealers have experienced the effect of coronavirus in different ways. The examples above are just some of the ways that inventory management and dealerships have been impacted. As business operations return to normal, management must think outside the box to differentiate themselves from the competition. At blum, we know the challenges that dealerships face and how to overcome them. Our automotive group works with dealerships to examine all possibilities and ensure the best results.

 

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