Inventory Turn is the most over looked key to a Car Dealership's success. When you are selling cars that go down in value on a daily basis, and require Black Book to come out with a new book every week, you better be paying attention to Inventory Turn, or you will get burned and go down in flames.
You may as well be selling Bananas or Lettuce because car values fluctuate as rapidly as lettuce rots on the shelf and faster than Bananas go from green to black. So, to combat your emotions about what a great deal you thought you made at the auction I have devised a system that will help you manage your Inventory Turn without getting emotional about the metal.
My recommended Pricing Strategy is as follows. On day 1 price the unit $2000 Over + Back, Pack, and Doc. On day 60 reduce the unit to $1000 Over + Back, Pack, and Doc. On day 90 reduce the unit to cost + Back, Pack, and Doc.
Yes, I know, you all make more than $2000 per copy but this is for the rest of us. The main idea is to have a Pricing Strategy for your Dealership that is followed by everyone in the Dealership without using emotion. Price the cars on day 1 and then your Pricing Strategy will dictate when you mark it down. You may decide to mark your cars down on day 45, day 60, or day 90, but the key is to be consistent and do not use emotion. Remember the goal is to accomplish as many Inventory Turns per year as possible. With an inventory based business you are playing a game of hot potato, and you do not want to get stuck with an aged unit that has to go back to the auction for a two grand loss.
As far as profit margins and home runs go, you should still swing for the fence every now and then if you really do happen to steal a car, but with the competitive bidding at auction stealing is not the norm. Here is what I suggest to maximize profits with floor ups and still accomplish high inventory turn on the Internet. Place a Window Sticker Price on the car that is $3000 over cost and mark the Internet Price $2000 over cost. If the customer calls you out on the Internet Price of course you honor it. If he does not mention the Internet Price then you desk him at the Window Sticker Price. This is done at every single Franchise store but not many Independent stores.
Nevertheless, this method will help you hold the $2000 gross on the Internet price, and lets you easily tell the customer that you have already discounted the car $1000 so you cannot discount the car any further. This method is no different than a steak house advertising a steak on the menu for $20 but if you present the printed coupon for $5 off then they will sell you the steak for $15.