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« Its a Car not a House! | Main | Global Sales November 2016 »
Wednesday
Dec142016

Inventory Levels

If you are in the auto business, or just a casual observer you are aware of inventory levels at dealers by the number of vehicles that are displayed (parked) on the premises.

Way back in the day, before technology, inventory levels were more of a gut feel, with simple ratios (up to a point). In addition to the mantra "You cannot sell from an empty shelf". Usually there was more than less inventory on the ground, be it new vehicles as well as used. 

One strategic vector for new inventory was to have specific models, or specific options that provided a competitive advantage. Those were the days of Bespoke Vehicles from the factory.

New vehicles are assembled in a "just in time" process where most if not all components are just in time, and sequenced to the assembly line. These vehicles that are assembled just in time, get stored on various dealer facilities for months prior to being sold. Reflect on this for a moment...

When components were stacked at assembly plants, and vehicles were stacked on dealer's lots it sort of all made sense.

At one time...the revenue generated by finance contracts from the captive finance company, would often cover the floor planning of the new vehicle inventory. Reflect on this too for a moment.

in 2016 with a ton of technology at the factory, at the dealer, and empowering the consumer, inventories of new and used vehicles remain stagnant, with modest improvements, if any from the good old days (gut-simple ratios).

Looking at "Days to Turn" in Canada from JD Power Market Metrics for YTD November.

Days to Turn

....................New............Used

2012..............69...............61

2013..............65...............60

2014..............62...............59

2015..............70...............60

2016..............73...............61

From the customer's perspective its irrelevant how many vehicles are on the ground at any time, and for how long. For the dealer its an expense. When new vehicle inventories surge its an additional expense.

You have to wonder with record sales, an ample supply of all sorts of technology, why the new vehicle inventory is so high in Canada this year.

What do you think?

 

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