Days on the lot is a lousy metric for evaluating used-vehicle operations, says used-car guru Dale Pollak. In some cases, a used-vehicle manager should wait for a customer who will pay what a vehicle is worth.
Those views may sound like heresy coming from one of the foremost proponents of pricing vehicles to market and turning inventory quickly.
But Pollak now says so-called age management — which he defines as "mark it up at first, then as days click off, lower the price" and eventually get rid of it at wholesale — is outdated.
As a measure of operational efficiency, days on the lot is as up to date as a sundial, he said.
Pollak is fine-tuning what he promises will be better metrics. He plans to share them with a limited audience in October followed by a rollout in January at the NADA Show. But he gave Automotive News a sneak peek.
Age on the lot is a crude measure of a vehicle's investment quality — its ability to make a meaningful profit contribution. With today's technology, it's possible to evaluate investment quality the day a dealership acquires a vehicle.
"If you know on day one, are you better off dealing with it today or 59 days later?" Pollak asked.
Say a dealership owns a car for $15,000 and can sell it immediately at a loss for $14,700 and reinvest in another vehicle that turns a profit. That's a better decision than keeping the vehicle and "praying to get lucky," Pollak said.
Using technology, Pollak has rated investment quality of used vehicles at dealerships he advises, labeling them platinum, gold, silver and bronze.
He found more than 80 percent of platinum vehicles — those with the most market appeal — were priced to move. Conversely, bronze vehicles — the best candidates "to blow out" — were priced least aggressively.
If a given vehicle is cheap relative to demand, and data such as a low days' supply shows high demand, "that's a car you should not price to move," said Pollak.
"You could afford to be patient to get the best profit."