Now What? Insight into navigating the Automotive Industry’s inventory shortages in the aftermath of the COVID-19 Pandemic

By Kenneth Rosenfield, CPA,

As we approach the final few months of 2021, we are receiving an influx of calls and emails from our automotive dealer clients about how to deal with waning inventory levels for the remainder of the year. One of our clients shared with us that their dealership is only receiving deliveries of vehicles on Saturdays because the delivery drivers will get paid time and a half for weekend work as opposed to the slower weekdays. So, while they deliver then to maximize their wages, some of these vehicle deliveries will not even satisfy the demand for the weekend.

So, what can dealers do to ramp up vehicle sales when the inventory does not exist? Some dealers are reviewing the lease schedules for their brand and asking customers with lower mileage units to see if they are interested in selling their vehicles back to the dealership, in some cases, for more than the customer paid for the vehicle! Crazy times to say the least. Mining the outstanding leased vehicle listings may be a good way to find vehicles for your inventory. Auction houses are reporting record level prices, especially in metro markets.

Consider looking at auction sites and inventories of other dealers in outlying areas and non-major metro markets where sales are typically low. They may have some deals on used vehicles out there. There is also the tactic of seeing if a service customer is interested in selling their vehicle if they can spare it or if it is coming off lease soon, they can pull it in and pay off the remaining lease. However, never lose sight of keeping what sells that fastest, with the highest grosses on your lot.

We have heard of some dealers stating that if there is no trade in for a new vehicle sale, the MSRP will be inflated as there is no residual sale available for the dealer. If a trade in exists, then a customer can obtain a vehicle at MSRP. Multiple dealer groups can at least sell off other storefront inventories, but that is not a long-term solution either.

It is not certain when manufacturers will be filling up dealership lots again. This is the time to go back to old school tactics such as working the highest gross possible and best deals with the indirect lenders to maximize profit potential. On the other side of the equation, it is also a good time to review the expense structure of the dealership operation. Variable costs should be scrutinized as to advertising, and other marketing costs going forward. Fixed expenses should be reviewed in detail such as excess rents, or start looking at obtaining rent concessions, management fees, and costs from all other vendors. With sales looking to be highly curtailed, may be a good time to re-negotiate as many costs as possible. Also, review your current workforce. Cross train staff in almost every area of the dealership, from accounting department to sales force and finance and insurance products. Do more with less by developing staff bench strength in all facets of your business to keep a balanced workforce with longevity. With the continued inventory shortages, your staff should be looking at the impact on LIFO reserves and planning cash flow and other impact on your tax situation.

We are encouraging our dealers to focus on the back end of the business. Some of our clients are having record sales in their parts and service departments, but you don’t want an onslaught of repair orders stop or hinder your best practices. Look to maximize hours and parts sales per repair order while maintaining high CSI and providing great customer service. Evaluate the parts inventory, ordering and pipeline of items to ensure that the parts inventory is maximized for days supply and meeting current and anticipated demand. Don’t waste money on parts that are not necessary to stock immediately. Perhaps look at services not previously offered such as tires and more chemicals. It may be necessary to have pricing that is competitive with the local market as well. Mine the lost souls in the customer history files and see if you can attract them back through competitive pricing matrixes. Automating the service drive process, offering pre booking appointments has been around a long time, but having parts delivered to bays ahead of confirmed appointments is a huge time saver allowing for more time to devote to servicing vehicles and no wait time between vehicles. Speeding up the service lane process also adds more time to work on vehicles, and with today’s technology, using text messaging and email communication with customers is easy and makes scheduling much more efficient.

These are just some assessments of our observations and candid conversations with our dealer clients. We implore you to share best practices and ideas to assist in working through the vehicle and parts inventory shortages our industry is still facing. Please feel free to reach out to us at any time for questions, concerns and idea sharing.

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