A dealership’s RV/Marine/Auto inventory will generate approximately 87% to 90% of all revenue dollars earned each year. How a dealer manages his or her inventory definitely determines if the year will be profitable or not. In this issue, we will focus on used inventory management.

The amount of new and used inventory varies greatly between dealerships. Some dealers focus 100% on used merchandise in order to capture higher gross profit margins (20- 30% GP) and to avoid dealing with warranty issues. Other dealers maintain a new/used ratio of 60/40, 50/50, 40/60, or 25/75.

The first step in controlling either new or used inventory is to determine your stocking levels. How much inventory should you be maintaining at your dealership on a monthly basis? Accurately answering this question assumes you have done a little research and established your dealership’s turn ratio. In the previous chapter, we discussed turn ratios, so please take a peek at that chapter while reading this section. Once you have established a stocking level, it serves as a benchmark for you to use in order to determine if you should be buying used inventory or selling it. Let’s assume your stocking level is $3,000,000 and you only have $2,200,000 in stock. You’re a buyer at this point in the game, so let’s continue.

Used inventory is usually acquired as a customer trade-in, but can also be purchased through the wholesale route. When appraising a trade, a dealer should have a specific person (manager) assigned to perform appraisals. The appraisal process must be accurate and thorough, and cannot be left to inexperienced personnel. Dealers use either the NADA Recreational Vehicle Appraisal Guide or the Kelly Blue Book to determine wholesale values. The NADA book is published and released during the months of January, May, and September of each year. In performing a sample comparison between the NADA May issue and the NADA September issue, we find that units generally depreciated approximately 5.0-7.5% depending on year, make, and model.