Stock as a Strategic Issue: Rocketing Values

During the last 18 months the word ‘unprecedented’ has become ubiquitous and, arguably, overused in many contexts. There are, however, good reasons why its application to the car industry, both globally and locally, is well justified.

The pandemic has had a tumultuous impact on both the supply and demand side of the industry and throughout the value chain. Supply of new vehicles has been crippled by shortages of aluminium, steel, rubber and many plastics, as producers closed plants during lockdown periods and have, in many cases, encountered difficulties in ramping production back up due to staff being forced to isolate. On top of this, the industry has discovered its new Achilles heel; vehicles so heavily reliant on processing power that they are literally immobilised by the scarcity of semi-conductor chips, caused by similar disruption to supply chains and the boom in demand for consumer electronics during COVID restrictions.

At the same time, increasing consumer confidence, unexpected access to cash from savings made during lockdowns, low cost of credit and caution around the return to public transport have worked together to create a robust bubble of demand which the paucity of new vehicle supply simply cannot hope to meet.

The inevitable outcome of this has been rocketing demand for nearly new and used vehicles, with commentators predicting sales volumes of around eight million units for 2021 as a whole. Such has been the gap between supply and demand that some late model used cars are being valued above the new car RRP. Older vehicle prices have also seen significant upward pressure with Autotrader reporting 87 variants achieving 80% or more of their new RRP after two years.

Throw into this mix the customer newly comfortable with the concept of researching and making major purchases online and it’s easy to understand why some dealerships are struggling to keep pace with the new environment and how gaps in competencies can become dangerously exposed.

One thing that has been highlighted by these issues, both individually and collectively, is the strategic importance of effective retailer stock management, from acquisition to the conclusion of the sales process.

Agile Pricing

With nearly new and used car prices under significant inflationary pressure (CAP HPI report 3.1% increase in values during July 2021, marking five months of growth) due to the shortage of new vehicle supply, keeping abreast of trade and retail prices is paramount in maintaining both competitiveness and dealer margins.

And, while traditionally there has been a perceived ceiling in nearly new values, as a certain percentage of the new car price, this is currently being challenged, with a range of nearly new vehicles trading at higher than RRP. With manufacturers beginning to openly discuss the imminent possibility of new car price rises, any nearly new ceiling price that does exist could also be inflated.

It is arguable that in such a rapidly changing and uncertain environment a daily review of market valuations against stock pricing is required. In practice, this can be extremely challenging to maintain and requires deep insight into the balance between trade and retail prices and the inevitable lag in movement between the two.

What is practicable, for dealerships with good management practices and strong stock MI, is to maintain a clear view of the acquisition price of every vehicle in stock and the price achieved at point of sale. Analysis of this data will help to highlight deficiencies in vehicle selection, poor sales practices and threats to business margins.

It’s clear that the current situation in the used car market is not going to last forever and that manufacturers are sure to ramp up supply of new vehicles as soon as parts supply and other economic considerations allow. That being said, it seems that the rapid pace of change in the industry is here to stay, with the megatrends of electrification, automation, connectivity and new ‘usership’ models all taking effect in the coming years.

Systemised stock management has a keystone role in so many dealership processes and management decisions. Any business seeking to maintain sales effectiveness, margins and customer satisfaction simply must get this right.

How CheckVentory Audit Can Help

CheckVentory Audit’s cloud and app-based solution delivers a group-wide view of the whole vehicle inventory on a continual basis, while consolidating data-feeds from multiple sources to give a complete and validated appraisal of your portfolio.

This level of insight enables a more proactive approach to stock management; maximising sales opportunities and allowing better-informed management decisions. It also provides invaluable input for governance and compliance requirements, as well as helping to secure lines of credit by building greater trust and collaboration with funders.

If you’d like to speak to an expert about transforming the way that you manage your vehicle inventory, please get in touch – or you can read more and book your demo on the CheckVentory Audit Dealer page here.