Inventory acquisition Q&A: Stocking your lot will take some creativity

Posted by Meg Bernazzani on October 8, 2020

Inventory acquisition has long been a pain point for dealers. It requires a combination of data, precedent, and dealer’s intuition to keep a lot stocked with in-demand vehicles that will move. And that’s before you consider other factors that fluctuate like changing consumer behavior, economic trends, and unanticipated events that affect supply and demand.

Dealers have been weathering changes and adapting their strategies for decades. However, the Covid-19 pandemic has had an unprecedented impact on the industry—particularly, on supply. It’s led to auctions moving online, manufacturing plants being shut down by OEMs, lease extensions, and an overall shift in consumers’ preferences. Together, these variables have added up to a shortage of quality new and used vehicles unlike ever before.

To get a pulse on the topic of supply and hear some ways dealers can adapt, we checked in with CarGurus’ Dealer Relations Team Lead, Benjamin Sacks.

Q: What have you and your team been hearing from dealers about inventory acquisition in recent conversations?

A: The impact Covid is having on supply is really widespread. Franchises and independents, new and used car dealers – everyone my team and I talk to is feeling the crunch. There are a lot of factors that have contributed to wholesale vehicle levels being down:

  • Closures of in-person auctions
  • A wave of consumers extending their leases to avoid a visit to a dealership
  • Dropoff of trade-ins when sales slowed

The majority of used car dealers I’ve spoken to are still feeling the effects: they’re seeing fewer vehicles running through the auction lanes, and higher selling prices for the vehicles that are available. Overall, quality used vehicles are in short supply for many, but especially those key inventory pieces like late-model SUVs, crossovers, and pickup trucks.

On the new vehicle side, though OEMs have reopened manufacturing plants, the shortage of new cars persists, and that has really had a knock-on effect up and down the supply chain.

Q: When do you see inventory recovering?

A: Supply and demand will eventually stabilize, but it’s going to take time. Inventory acquisition will likely remain a challenge for the rest of 2020, perhaps longer, but it’s important to remember that both used and new supply will return. When the auction lanes are running at full capacity, the used vehicle supply curve should rebound quickly. And, new inventory levels will also increase as OEMs continue to ramp up production at previously closed plants.

Q: What can dealers do to get creative in the meantime?

A: Covid has really flipped the script on traditional inventory acquisition tactics, and it’s the dealers who are getting creative that are going to see the best results. There are a few things I recommend when I speak to dealers:

  1. Service departments never shut down and dealers can use this to their advantage. Have service advisors flag cars that are almost up on their lease as a way to identify inventory they can try to acquire.
  2. Be willing to experiment with new acquisition channels. In particular, do more buying on Facebook Marketplace and Craigslist. Even if these channels haven’t been as effective during normal times, it’s worth exploring alternative sources right now.
  3. Lean into your existing customer database. Use your CRM to market to previous customers and offer to buy back used vehicles in good condition.

Overall, dealers really need to be willing to experiment during this time. Anyone who’s waiting on the sidelines for things to go back to exactly how they used to be is going to get left behind. Covid has pushed consumers into online shopping, and I think savvy dealers will want to start to adopt digital retailing practices in their everyday operations.

Q: Does CarGurus offer any tools that can help dealers with inventory acquisition?

A: One of the best things a dealer can do right now is to use data to inform their inventory purchasing decisions. The CarGurus Market Analysis Tool helps dealers identify in-demand vehicles in their local area. Dealers can filter by make and model, sort by things like total VDPs, searches per inventory unit, and average days on site, and adjust the radius for their local market. By looking at the information on what consumers are looking for in their area, dealers can find cars that will sell in their area that they might not have chosen before the pandemic.

The Market Analysis tool recently got a new look, based on dealer feedback, and is a great resource for dealers who are trying to figure out which vehicles will sell in their target market.

Q: Any advice for dealers who haven’t exhausted their supply?

A: Whether they’re in a small DMA or an area that’s been hit harder by the current recession, I know there are dealers who are still struggling to sell and turn inventory. A great first step for these dealers is working with their website provider to make sure they’re advertising effectively with SEO and SEM tactics.

Second, CarGurus can help dealers cast a wider net. Our product, Area Boost, helps dealers expand their reach by showing their deliverable listings to shoppers outside their local market. Especially in today’s unique selling environment when most car shoppers would prefer to use contactless services during the purchase process, this product provides a simple way for dealers to increase their exposure and convert a larger audience of shoppers.

As we all navigate through the rest of 2020 together, it’s important to remember that this is uncharted territory for everyone. There’s no one-size-fits-all approach to supply issues—all you can do is stay flexible and listen to consumers.

For more recommendations on how to navigate the current health crisis, download our latest white paper.

Topics: covid-19, inventory, inventory acquisition