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Have you watched the Variable Management Tutorials?

Behavior Change: Software Alone Is Not the Answer

Learn how practicing Variable Management often runs contrary to “well-established” used inventory management norms, and why it requires a conscious effort to change behaviors beyond the purchase of software.

But there is yet other reasons, other reasons why every single dealer in the country has an irrational pricing profile for the purpose of optimizing ROI. And it has to do with human nature and past experience. You see, every human being on the face of the earth has a brain that's wired to avoid pain and loss. Imagine how miserable life would be if we woke up in the morning to go out and find situations of pain and loss. We do the opposite. So if you had the ability to come to work today and see a vehicle on its first day of inventory, life. In distress. Why? Because you're up for too much money. It's got high market day supply and it's got low retail volume. Let me ask you a question. Who wants to jump on that grenade? Nobody. You know what we would do, right? You know exactly what we do. We'd say, well, let's give it some time. Let's get let's let's give it a chance. Kick the can down the road. That's what human nature has us do every day. And past experience likely would have rewarded us for doing that, because when the market was not so transparent, when the market was less efficient, where it's only a matter of time before somebody would come along who didn't know better and pay us too much money and nobody ever would have had to jump on their grenade. You see, this is what's happening to us every single day. To every single one of us. It's ubiquitous across the industry. Everybody's got human beings pricing these vehicles. Everybody's making decisions on the flawed premise that the number of calendar days equates to the number or the amount of profit opportunity the vehicle holds. And it's wrong. It's simply wrong. But this is endemic to the industry. This is the way we all do it today, and this is why we get the outcomes that we get. And I think we all sort of just understand this is how we do it. But what we now understand is it doesn't serve our interests in creating optimal return on investment on these vehicle assets. So let me give you the good news and the bad news. The bad news first, it has proven to be maddeningly, maddeningly frustrating for me how difficult it is for a dealer to un-invert their irrational pricing profile. Nobody should believe that if you bought certain software, it's going to happen. I can tell you with painful experience that that is not the answer. Let me tell you something. Software is never the answer to sustainable performance improvement. The only thing that ever drives sustainable performance improvement in any dealership, or probably for that matter in any business, is a proper strategy that's well-executed. So it's a strategy. It's people. It's process. And I mean, sure, somewhere in there you need tools like maybe software, but it is not going to be corrected by having software. I can absolutely tell you. I mean, you might think it is. And people often say, oh, this makes a lot of sense. I'm going to go out and I'm going to get that software. Don't do that. Don't do that. That's not where you start. And I'll tell you why it's so difficult for dealers to un-invert their pricing profile, because if you were to begin to think and behave as a rational, prudent investor with respect to the management of your used vehicle inventory, I'm going to tell you that it's going to cause you to violate, violate all sorts of quote unquote, traditional good practices of used car management. And I can give you dozens of examples. Let me just give you a couple in the interest of time so you know what I'm talking about. You know, as I said, if you could come to work and see a vehicle on its first inventory day of life in distress, because you own it for a lot of money, too much money, high market day supply and low retail volume, the smartest thing you could do to salvage whatever ROI opportunity is in that vehicle is to move it out fast. And that might mean that you got to put a zero profit price on it, or maybe even put a price on it that creates a loss on day one. Now, if you did that, do you think that anybody in the dealership would come along and patch you on the back and say, "Hey, way to go. Good thinking. Good move." No, you know what they would do, they'd come along and say, "What the heck is wrong with you? That car is only one day old. You should give it a chance." And if you happened to do that repeatedly as the pricing manager, you may very well lose your job. And you know, that's true. On the other end of the spectrum. If you had a platinum car that was truly platinum, you should have that car out there priced for a $4,000 profit. Now somebody comes along and a deal or an offer comes to the desk, and this is the customer's last, best final offer, if we don't take this one, they walk. It's an $1,800 profit. You know what you ought to do on that? You ought to pass it. But if you did pass it once again, is anybody going to come along and say, "Way to go. Good thinking, smart move." No, They're going to come along and say, "What the heck is wrong with you? You just passed an $1,800 front-end gross." And again, if you did that repeatedly, you're going to be on the street looking for work. And you know, this is true. And I could give you dozens of other examples of the dealership day to day decisioning, where this plays out the same way. We are not cultured. We're not trained. We're not experienced to make decisions on vehicle investments as a prudent business person would with an eye towards optimizing the ROI. The good news. If you are capable of doing it. And some have. There's two certainties, and it's very difficult to say in life or business that anything is certain. This comes as close to anything that I know where I can say to you in good conscience it's certain two things will happen. The first thing that will happen is that your volume will grow and you'll understand why shortly. The second thing I can tell you with certainty that's going to happen is your gross is going to grow along with it in a pretty big time way. How could it not? And you'll understand shortly here why these two things are virtual certainties.
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Select all reasons for pricing irrationality in used vehicles.

Check all that apply.

What drives sustainable performance improvement in the dealership?

What is the best pricing decision on Day 1 for inventory that is in distress (own it for too much money, high Market Days Supply, low sales volume)?

A customer offers to buy a vehicle with high ROI potential (you own it really right; it has low market days supply and high sales volume) at a price that reduces your potential gross by 50 percent. You’ve owned the vehicle for ten days. Should you take the deal?

What is needed to correct an inventory with an inverted pricing profile (Bronze vehicles priced high and Platinum vehicles priced low)?

If a dealership shifts the focus on pricing to optimize their ROI on each vehicle in inventory, what will happen?

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Velocity vs. Variable

Get a simple breakdown of the core differences between these two ways of thinking about used inventory management.