Picture the scene. A car is sitting on your forecourt for 40 days without much interest because customers say it’s priced too high.
You receive offers throughout the month to lower the price, but you play hard ball. Eventually, the car does sell for a profit of £2,000 and you walk away from the deal feeling positive that you have secured every last penny of margin from that vehicle – seems like a good deal, right?
But now consider the difference if you were to sell two cars in that same period, but for a lower margin of £1,500 per vehicle.
While you will have exerted more energy to secure both those deals, you would now be walking away with 50 per cent more profit than before.
Even in this simple example, it’s easy to see that the single greatest impact a dealer can make to their bottom line is to increase stock turn. The faster the metal moves, the greater the potential for profit in the long run.
Every car that sits on a forecourt for more than 30 days increases the risk for a dealer to lose money.
Increases in days to sell result in depreciation in vehicle value, staff spending more money chasing a sale and more advertising costs incurred in marketing the vehicle successfully.
In short, pricing competitively and selling quickly, even if that means the per-unit margin is less than you think possible, is the greatest way of improving your bottom line over time.
But of course, you need to be equipped to buy more vehicles to support an increased turnover of stock.
The role of funding
To keep stocking vehicles, you need working capital, and having access to funding gives you the confidence and freedom to bid and buy when the right vehicle comes along.
Cashflow needn’t be a worry – funding ensures your money isn’t tied up in the metal on your forecourt, so you can buy the right stock when it becomes available.
There are many ways to fund a vehicle purchase, including traditional loans, captive and non-captive finance.
But often these come with limitations, such as restricting where you can buy from, or coming with an expectation of reciprocal consumer finance.
It can be difficult to determine the best one for your business.
I believe that it’s important to be agile when you’re increasing stock turnover. You need to be equipped and have the flexibility to buy from multiple different sources so you’re not missing out on vital stock.
With NextGear Capital, I believe we offer something different to the majority of funders.
Primarily, we’ve created a funding product that gives dealers freedom and flexibility.
The key difference is that dealers receive 100 per cent funding regardless of source. That means auction, trade sources, part-ex and even vehicles bought directly from the public.
This has become increasingly important as the pandemic has forced many dealers to search for stock outside of their usual channels.
Discover how NextGear Capital can help you fund your forecourt at www.nextgearcapital.co.uk.