Aged Used Vehicles and Motivating a Sale

Aged Used Vehicles and Motivating a Sale

Postby Chas » Wed Jan 14, 2009 8:48 pm

A suggestion too all the controller that have spent an endless amount of time reinforcing the importances of turning aged used vehicles.

I believe Ive hit on an interesting workable idea.

Heres how the scenario usually works-out, you go to the dealer and say we need cash, we need to move these aged used vehicles over 120 days (too long by most standards)out of our used vehicle inventory, the bank now want curtailment payments and theres no room left on the floor.

The owner then proceeds to tell the used car manager sell them. Another 30 days go by and there still at the dealership.

The owner then says to the used car manager, Whats going on, I told you to sell. The used car manager replies, I just got to busy and I have a buyer lined-up.

30 more days go by and guess what, still have them.

My answer to this and actually approved by the dealer and reluctantly approved by the used car sales manager. From here on in any used vehicle that hits 90 days will enjoy the honor of a 5% write-down charged directly to Gross Profit that month prior to closing and calculating the used car managers bonus.

I guess after a period of time the manager will sell them, since they now may generate a profit.

What do you think?

Good luck to all and 2009 eventually will work-out.
Chas
 

Aged Used Vehicles and Motivating a Sale

Postby deboss » Thu Jan 15, 2009 8:47 am

Chas,

Guess this would work but it should not be necessary to go to this length to get a sales manager to do his job. Old units have always been a problem and in todays market with curtailments being much more likely and the tightness of credit they are really a problem.

I have used what is pretty common (in variations) in our 20 group to help move old units.

We add $300 to the cost of every used unit we acquire except obvious wholesale units. This is an actual accounting entry not a sales pack and does not offset any reconditioning or get ready costs. This $300 is placed in a reserve account and used to write down old units. At 45 days a unit is written down 5% against this reserve no questions asked. At 60 days we place a spiff for the sales person. This is an immediate cash spiff from $100 to $500 depending upon the unit value and ugliness. The Spiff also comes out of the reserve account. They realize their EOM check will reflect the payroll taxes on this spiff but it is handed to them in cash immediately after the unit is delivered.

Has worked great, we still will get a real ugly unit and have to wholesale it from time to time and take the loss against the reserve. This allows the sales manager to take a hit on a unit without seeing his commission go down the tubes. In reality his commission has already been reduced by the reserve on each unit. I think the resistance you mention to selling a unit at a loss is two fold (1) admitting you made a bad buy (2) taking the hit on your paycheck.

I monitor the balance in the reserve account and will from time to time tweak it but since we went to the $300 level a couple of years ago it has pretty will been a wash even (knock on wood)in todays market.

One comical note - we make certain the sales person understands their pay stub will reflect this spiff. Seems some of them neglect to mention this mad money to their spouses and when the spouse sees the pay stub ....... Honesty is the best policy in this business and with your spouse.

[This message has been edited by deboss (edited 01-15-2009).]

deboss
 

Aged Used Vehicles and Motivating a Sale

Postby Chas » Thu Jan 15, 2009 11:12 pm

First the idea is great, but theres one problem, we already apply a $ 200.00 accounting entry per retail unit and it seems to be consumed faster than it can be accumulated, always behind the eight ball for one reason or another.

One quick question, as for spiffing the aged units thats fine but dont you find that by applying the spiff to the reserve account that it distorts your sales people compensation percentage of gross profit, which in turn makes it difficult to do composite comparisons.

Also, after a unit is written-down, is the write down % commissionable and do you continue writing down the unit an additional 5% each month until its value could actually be zero?

PS. Thanks for the reply
Chas
 

Aged Used Vehicles and Motivating a Sale

Postby deboss » Fri Jan 16, 2009 10:43 am

We have been at the $300 level for some time. As I recall it started at $150 and that was not adequate, I then bumped it to $300 which has been adequate. We were quite fortunate (by happen stance) to not take big hits on the SUV's a year ago. Not too sure any allowance would allow for 5k hits on large number of SUV's. I failed to mention that we do not do a "sales pack". All units are at actual cost + the $300 + transportation, actual recon, and get ready. One item I might add - from time to time we get "lucky" on a wholesale unit and make several hundred dollars. I also place this in this reserve account by writing the unit up prior to posting the sale. This kicks in about 3K a year to the reserve.

Your are correct that it causes a distortion of some percentages especially when I do the $500 spiff. But I am aware of the underlying figures.

Yes the write down is commissionable. Since the sales force is aware of this write down policy I would imagine there has been an occassional deal "delayed" knowing it was going to get written down. Of course the sales person doing this would be running the risk of the unit being sold elsewhere or his customer going elsewhere.

In theory yes a unit could eventually approach zero (but not 0 mathmatically) but that is not going to happen unless my sales manager and I are marooned on a island, cannot recall when we have had a used unit over 90 days old. I do have an excellent sales manager that is on top of the inventory. He frequently wants to get rid of a unit I want to hang on to - I have more trouble admitting a bad buy then he does.

Excellent post and questions hope it has been helpful.
deboss
 

Aged Used Vehicles and Motivating a Sale

Postby Harry » Mon Mar 16, 2009 12:46 pm

Charging every vehicle purchased or traded for is a great idea. However putting the money is a slush fund to be divided up to salespeople and units of age could be improved.

If you get 5 trades or purchases in a day make the charge 200.00 or 300.00 as you see fit and then credit that number to the oldest 5 units in inventory. With a 200.00 fee at the end of the month with 22 working days you will have reduced the oldest vehicle by 4400.00. Every customer that comes to the lot will get to see the oldest inventory after the first 30 days, because the commission will be so good. This will start to lower the inventory cost and count of your entire older inventory. Everybody shared in the bonus without a cost to the dealer.
Harry
 

Aged Used Vehicles and Motivating a Sale

Postby TheOne » Mon Mar 16, 2009 4:08 pm

Convoluted solutions are no solution at all!

Keep it simple:
Re-book your used inventory bi-weekly and take the write down to current month gross each time.

The sales staff will self motivate each time the percieved value is back in the car.

Your used car buyer will feel the pain to purchase properly, and your gross profit will be truly reflective of the job done by all parties.
TheOne
 

Aged Used Vehicles and Motivating a Sale

Postby deboss » Sat Mar 21, 2009 12:05 pm

Perhaps because I have developed and fine tuned the process I posted over time, I did not realized it was a "convoluted solution". Thanks for pointing that out. I am a strong believer in the if it "ain't broke don't fix it" theory, but am always open to suggestions for improvement.

I have a few questions concerning the biweekly markdown theory.

1. What about markups? The used market is quite fluid and in some cases seasonal. It would seem logical to do both markups and markdowns. From December 2008 to January 2009 the used car market was generally up. So in January I would have booked a gross profit even it I had not sold a unit?

2. If a used car buyer is not already motivated to "purchase properly" you have a problem and this or any process is merely a bandaid on this problem.

3. "Re-book your used inventory bi-weekly". I assume this means to rebook it against one of the wholesale price books. I have the ability with merely a few mouse clicks to compare my used vehicle values with NADA. To make accounting entries doing every two weeks while possible could be burdensome.

4. Has anyone successfully applied this theory and are they presently using it (with success)? If so how many retail used vehicles a month?
deboss
 

Aged Used Vehicles and Motivating a Sale

Postby TheOne » Mon Mar 23, 2009 10:21 am

deboss,
I meant no offense.
1. Yes I failed to point out that markups are also valid as well. Once the staff figures out that cost may very well rise "next week" making the customer calls this week becomes far more important rather than putting them off.

2. Absolutely correct if the used car buyer is not properly motivated you already have a problem. My methods in all departments force a level of transparency and accountability on a daily basis. I believe in systems that alert the DP to potential problems early. This is also beneficial to the employees. It give them a chance to show that they deal quickly and effecctively with red flags. Better to fix buying issues BEFORE the inventory gets filled with water.

3. Yes I was refering to rebooking against the wholesale valuation that you most trust. Yes it can be tedious, but it can also be delegated, and where better to put some of your manpower resources than rightsiding the value of your assets. Seems to me if the banking business had made this a practice.......

4. Iv'e used this approach all over the country, large stores and small. I can't count the times when working with a new account that the DP looked like a deer in the headlights as he/she realized how full of water the used inventory really was. In most of these cases we held off on making the accounting entries until we had sold down a significant portion of the problems...
TheOne
 


Return to CFO, Controller & Office Manager

Who is online

Users browsing this forum: No registered users and 3 guests