Fun with numbers
There are many interesting ways to assess your Used Vehicle policies, whether it is your approach to stocking, pricing, retail vs. wholesale, etc. One fun exercise is to determine what your breakeven day is for a UV unit in inventory. Here’s how:
First, consult your state for your YTD total Used Vehicle expenses, which should include an allocation of Fixed Expenses (20% is the NADA allocation). Once you know your YTD expenses, divide by the total number of months that have elapsed; this will give you your average monthly expenses. You will then want to divide by 30, giving you the average expenses for your UV department each day. Next, you will divide this number by your number of units in inventory to establish the expense per vehicle per day. Now get your average days to retail a used vehicle (which should be available from your DMS or UV inventory software – if you don’t know where this can be found, you should have a pretty good estimate in mind) and multiply this by your average cost per UV per day; you now have your average cost to sell a used vehicle!
Of course, we said we were going to determine our breakeven day and we are not there yet! Now that you have your average cost to sell a used vehicle, you will want to divide your average gross per unit (retail, wholesale and F&I grosses) by the average cost per UV per day. You can find your average gross by simply dividing your total YTD Used Vehicle gross by the total number of units sold. This division will basically tell you how many days you can hold on to a unit before it loses you money. A simpler visual of these calculations is below:
Now this is by no means a perfect calculation nor does it provide a perfect outcome. However, on a strictly analytical level, it can help you recognize the need for quicker inventory turns in your UV department. If you are not convinced that the numbers are accurate, play with them! If you are especially heavy on inventory this month, estimate 10% lower; if you think your average days to sell a unit are off, add or subtract from it; and since you should be recognizing reconditioning revenue as part of the equation, feel free to add that to your gross. No matter what you do with the number (assuming they remain somewhat realistic for your operation) you will rarely see a breakeven day higher than 75 or lower than 45. And the point is to always do better than breaking even!