Inventory listings on both new and used are up across the country. Shopper counts are lower, interest rates are up, and retail sales are slowing. A dealer will fight two battles. One is the value of the vehicle depreciating, and the other is the holding costs.
Automotive holding costs refer to the expenses incurred by a business for holding and storing vehicles in inventory. These costs can include various elements associated with keeping vehicles in stock until they are sold. Here are some components of automotive holding costs:
1. Depreciation: The value of vehicles tends to decrease over time, even if they are not being used. Depreciation is a significant factor in holding costs.
2. Interest on Financing: If the vehicles are purchased through financing, interest payments accrue over the holding period. This is a cost associated with the capital used to acquire the inventory.
3. Insurance: Vehicles in inventory need to be insured against potential risks such as theft, damage, or other unforeseen events.
4. Storage and Maintenance: Costs related to storing vehicles, maintaining their condition, and ensuring they are ready for sale when needed.
5. Taxes: Depending on the jurisdiction, there may be taxes associated with holding a certain number of vehicles in inventory.
6. Opportunity Cost: The capital tied up in inventory could be used elsewhere for investment or other business purposes. The potential earnings from alternative uses represent an opportunity cost.
7. Obsolescence: In the automotive industry, models and technology can become outdated relatively quickly. Holding onto inventory for too long may lead to obsolescence, resulting in reduced resale value.
8. Risk of Theft or Damage: There is a risk of theft or damage to vehicles while they are in inventory. This risk may necessitate security measures and additional costs for repairs or replacements.
9. Administrative Costs: Costs associated with managing the inventory, including record-keeping, tracking, and other administrative tasks.
Minimizing holding costs by reducing excess inventory and helping to monitor the inventory to optimize turnover is crucial for efficient inventory management. Stop holding on and push to sell 65%+ in the 1st 30 days and replace. You will reduce holding costs and add to volume and profits.
NADA says the average used car holding number is $55.00 a day. What is your number? If you are a LotWalk user, we have a calculator on the left-hand rail, shown below, that crunches all those numbers for you.
Holding cost is shown on every vehicle and is customizable to your store.
This is a great exercise to show your staff how high holding costs can be detrimental to a company’s financial health. Every department can find a way to streamline their process to lessen the holding costs.
-Pam Humphrey
Industry Specialist
pamh@lotpop.com
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