As the temperatures plummet and Q4 comes to a close, automotive dealerships need to do a little “winter cleaning.” Of course, this means clearing out the lots by targeting slow-moving vehicles.
Any good operation knows that inventory management directly correlates with the success of the dealership. Still, even the most efficient staff can encounter hurdles when it comes to selling vehicles that are in less demand.
Independent auto dealers must maintain a healthy cash flow, and aging inventory can quickly become a financial drain if not addressed immediately. Ideally, vehicles should be sold within 90 days, and some dealerships aim for an even tighter window of 45 days. Any cars lingering beyond these timeframes turn into liabilities.
As you refine your plans, think about these inventory clear-out tips to tackle slow-moving inventory and ensure your dealership thrives for the new year.
What is Slow-Moving Inventory?
Slow-moving inventory typically includes cars or parts that have remained on the lot or in storage for an extended period without a sale. This happens due to inadequate demand forecasting, shifts in consumer preferences, or broader economic changes impacting buying behavior.
Slow-moving stock refers to inventory with a low turnover rate, meaning these items stay in stock longer than the suitable period. The inventory ties up financial resources and increases holding costs, which depletes overall cash flow. The classification of slow-moving inventory, however, is highly dependent on the nature of the business.
For automotive dealerships, the timeframes for what’s considered slow-moving are markedly different from those in industries like food, where products turn slow-moving after just a week. On the other hand, auto parts may only be considered slow-moving after several months without movement.
Slow-Moving Inventory Strategies
Assess and Identify
The start to managing slow-moving inventory begins with regularly monitoring inventory turnover rates. In the automotive industry, it’s typically beneficial to aim for an inventory turnover of 4-8 times annually. Monitoring your inventory turnover rate helps auto dealers get clear insights into sales performance.
A high turnover rate means vehicles are sold quickly, improving cash flow and lowering holding costs.
A low turnover rate can mean overstocking and potential problems, which is where you should make adjustments to better align with the market.
A vehicle inventory tracking system (best known as an inventory management system) like Lotlinx Sentinel uses a 30-day turn calculation to keep your turn ratio always current, providing the most up-to-date sales data from your dealership to get insights into which vehicles or parts are not generating traction among buyers. Once you have this knowledge, you can set inventory thresholds on quantity, which basically just means the lowest amount of inventory a business wants to hold.
How To Calculate Your Inventory Turnover Ratio:
Inventory Turnover = 365 days / Average Vehicle Inventory Age (AVIA)
AVIA = Average Monthly Sales / Average Number of Vehicles in Stock
Read more about optimizing your car dealership inventory turnover ratio.
Manage Holding Costs
The costs of storing and maintaining unsold vehicles or parts can erode profits fast. These include:
- warehousing expenses
- insurance
- maintenance of unsold cars
- depreciation
To minimize holding costs, innovate flexible storage solutions or negotiate better terms with storage facilities. You may need to adjust your insurance and security measures to help correct spending on stock that isn’t yielding returns.
Enact Sales Strategies
To propel slow-moving cars or parts toward consumers, implement strategic discounting, bundling, or promotional campaigns for that added sense of urgency and interest. Other year-end stock clearance strategies may include hosting special sales events like flash sales or exclusive clearance deals targeted at specific buyer demographics. Use email marketing and social media to reach potential buyers and display discounts to make customers feel they’re in on something exclusive.
Here are some proven sales strategies that are bound to make traction:
- Use CRM data on Facebook and Instagram to target specific buyers, promote tailored offers, and highlight limited-time deals with testimonials to boost engagement and trust.
- Promotional campaigns and bundling strategies like package deals that include both popular and slow-moving items can add value and incentivize customers to make a purchase by pairing a slow-moving vehicle model with complimentary maintenance or added accessories.
- Optimize Local SEO by updating your Google Business Profile and using location-specific long-tail keywords to attract nearby customers.
- Virtual tours and video marketing allow dealerships to show vehicles through immersive video content on platforms like TikTok and Instagram, offering virtual test drives and 360° tours to engage customers.
- Flexible financing options, like competitive interest rates or flexible payment plans, can make purchasing more affordable and accessible for potential buyers.
- Tailor your emails to different customer segments with updates on new arrivals, exclusive promotions, and events, using captivating templates and testing subject lines to engage.
Read more about these end-of-year inventory sale strategies in detail.
Enable Technology
Digital marketing and VIN-optimizer tools help dealerships pave new avenues to move inventory. Featuring slow-moving vehicles on highly trafficked auto marketplaces or through virtual showrooms can broaden your reach. Take advantage of pop-up promotions on your website to draw attention to deals, and explore partnerships with online sales platforms that can help feature your stock strongly.
Learn more about Lotlinx’s next-generation technology, backed by 8 billion data points.
Optimize for the Future
Looking forward, dealerships should refine their inventory management practices to prevent future surplus accumulation. This means prioritizing their inventory management operations and developing strategic forecasting methods to match inventory refresh timelines with predicted consumer demand. Regularly review market trends and adjust order quantities to maintain the perfect stock level suited to seasonal sales patterns.
The Takeaway
Excess and old inventory is a rite of passage car dealerships will face at some point, and it’s only a matter of time before it happens again. It’s a fact of the industry that even the most successful businesses will sometimes have months where sales don’t meet expectations.
But as a savvy auto manager, you have the tools and slow inventory movement solutions to use this as an opportunity for growth. Set up your inventory management system and use the abovementioned tactics to creatively clear shelf space and generate revenue.
Interested in more best practices for inventory clear-out? Explore how Lotlinx can assist with this transformation. Start with an introductory phone call with an inventory specialist to schedule your demo and see how we can increase your PVR by an average of $350.