A Used Car That Sits Costs $1,000 Every 2 Weeks

Why does a used car that sits cost you $1,000 every two weeks?

Jasen Rice puts a pencil to the number he quotes more than any other. Half of it is the price drop you owe the market every 15 days. The other half is holding cost that most inventory managers never see because the dealer pays it. Here is the math, on a real 300-car lot.

Five things to take from this tip.

The $1,000 is $500 in price plus $420 to $700 in holding cost. Two percent of a $25,000 average investment is $500 every two weeks. Holding cost at $30 a day is $420 for 14 days; at $50 a day it is $700. Jasen calls the round $1,000 light.

Each 15-day bucket should be 2 to 3% more aggressive. The clean 300-car dealer on screen starts at 99% of market in the 0 to 15 bucket and steps down from there. Start at 100%, then 98, then 95 or 96, then 93. If you are not stepping down, Jasen's read is that 15 to 30% of your inventory is older than it should be.

A $250 drop only gets you back to a price that already failed. The market drifts about 1% a week, so 99% of market becomes 100 or 101 by itself. Cutting $250 returns you to 99, the number that did not work last week. Cut 2% and get to 97 or 98.

A $2,000 markup is about $1,000 by day 30. Take a 15-day-old car with $2,000 of markup. Let it sit to day 30 and the discount plus holding cost leaves roughly $1,000. That is why the goal is 60 to 70% of sales inside the first 30 days.

Clean lots still have heavy buckets. Same dealer: 300 units, none over 60 days, three over 45. Still 25 units heavy in 2022s and 22 heavy in large pickup trucks, because 50 in stock and 13 sold in two weeks is a pace of 26.

What Jasen covers in twelve minutes.

Where the $1,000 comes from

This is the tip behind the number Lotpop uses everywhere, so it is worth seeing how Jasen actually builds it. He starts with a real dealer's lot on screen: about 300 units in stock, selling about 300 a month, three cars over 45 days, none over 60. Seventy-three percent of that dealer's sales go out fresh, where the gross lives. He uses it because a clean store's pricing profile looks the same regardless of the numbers.

That profile is a staircase. The 0 to 15 day bucket is priced at 99% of market. Each bucket after it is 2 to 3% more aggressive. Jasen's rule: start at 100%, be at about 98% in the next bucket, then 95 or 96, then 93. If you are holding 99% until day 30 and then getting aggressive, his read is that 15 to 30% of your inventory is older than it should be and you are not maximizing gross. He offers to prove it live on any dealer's inventory.

Half the number: the price you owe the market

Most dealers carry an average investment around $25,000 (the store on screen is lower, about $23,000, which Jasen says is part of why it turns so fast). Two percent of $25,000 is $500. That is the price move you should be making every two weeks to stay on the staircase, and it is the first half of the $1,000.

The pushback he hears is that $500 sounds aggressive, most managers move $200 or $300. His answer is that $250 is not even keeping up. The market drops about 1% a week, so 99% of market on Monday is 100 or 101 the next Monday without touching anything. Cut $250 and you are back to 99, the number that did not sell the car last week.

If 99% didn't work for a week and now you're at 100% and you drop it $250 to get back to 99, why do you think 99 is going to work this week if it didn't work last week?Jasen Rice, LotParty Quick Tip

So the move is 2%, to 97 or 98%, and that $500 is gone the moment the car sits another two weeks. If you want to build that into a routine, our guide to repricing cadence lays out the weekly version of this discipline.

The other half: holding cost the dealer pays

Jasen cites NCM for the range: at least $30 a day, up to $150 a day, for a car to sit on a lot. Some dealers push back that they own their inventory and their building outright, so there is no floorplan interest and no rent. He grants that, then points at the electric bill, the internet, and every other fixed cost of keeping the facility open. Even that dealer has a daily number, maybe $30. Most stores run $50 to $150.

Take the conservative end. At $30 a day, 14 days is $420. At $50 a day it is $700. Add either one to the $500 price move and you are past $1,000 every two weeks, which is why he calls the round number light. The people who tend to ignore this half are inventory managers, because they are not writing the check for floorplan or rent. The dealer is. This is the same erosion we walk through in the 30-day car versus the 100-day car.

What it does to a $2,000 markup

Now apply it to a unit. A 15-day-old car with $2,000 of markup that sits to day 30 has, after the discount and the holding cost, about $1,000 of profit left. On the $23,000 average investment of the store on screen, $2,000 is the typical markup. On a $40,000 average investment it is closer to $3,500, so the percentages hold. Either way, by day 30 the gross you bought is half gone.

That is the reason for the target Jasen repeats: 60 to 70% of your sales inside the first 30 days. Carry 100, sell 100, and make gross by pricing each age bucket about 2% more aggressively than the last. The gross was made when you bought the car. The staircase is how you keep it. For the broader playbook, see how to reduce aged inventory.

Even a clean lot has heavy buckets

He closes by finding problems on the very dealer he has been praising. Twenty-five units heavy in 2022s. Twenty-two heavy in large pickup trucks. Same two-week math: roughly 50 2022s in stock, 12 or 13 sold in two weeks, a monthly pace of about 26. That is 25 units that will age unless the sale rate on that bucket goes up. His fix is to isolate the bucket, adjust the units that need it, and raise the contact ratio on every open lead attached to a 2022 still in stock. Inventory and leads, worked together, on the weekly call.

Three moves for Monday morning.

Chart your price-to-market by age bucket

Pull average PTM for 0 to 15, 16 to 30, 31 to 45, and 46 to 60 days. It should step down 2 to 3% per bucket, something like 100, 98, 96, 93. Any bucket that is flat with the one before it is where your aged units are being born.

Reprice by 2%, not by $250

For every unit past 15 days that did not sell at its current PTM, move it 2% this week (about $500 on a $25,000 car), not back to the number that already failed. Repeat the check every two weeks until it is gone.

Put a daily holding cost on the desk

Agree on your store's number, whether that is $30 or $150 a day, and print it next to the age of every unit in the aged bucket. When the desk can see that two more weeks costs $1,000, the conversation about taking the first good deal gets shorter.

Where LotWalk fits.

None of this math needs software, and Jasen built the habit on a calculator. What LotWalk does is keep it from slipping. The desktop Scoreboard shows Price To Market by age bucket and Sold By Age Bucket (First 30 versus 61+), so you can see the staircase and the 60 to 70% target every day, and the repricing flag catches units that have drifted off market by more than your threshold so the 2% move happens weekly instead of monthly. The weekly coaching call is where the heavy bucket (the 2022s, the large pickups) gets isolated and turned into a game plan the coach checks on next week.

Read the whole tip.

Show transcript (lightly edited for readability)

Where the $1,000 every two weeks comes from

Another LotParty Quick Tip. If you're watching this, you can also listen to it on the podcast. Quick note before I start: we just got back from NADA. Flights were getting canceled and our whole crew buckled up and drove, anywhere from Oklahoma and Texas to Kansas City, and some of our guys flew into Shreveport, Louisiana and drove in. It was a light crowd, but the dealers who were there were serious, so it was a good event for us.

The title of this one is: it costs $1,000 every two weeks for a used car to sit on your lot. This could be basic, and I don't know how many people actually put a pencil to these numbers, but I want to expose this to you. As we get into tax season you should be able to ask a little more for your cars. I wouldn't do it until you start really getting that volume in, and then you can maybe hold on pricing. What I'm going to go over is a blanket approach on how to make price adjustments in a normal market. Tax season is here in the next couple of weeks. Some of my dealers are holding on some prices, but it has an impact on volume. They're clean, so they can play around. As soon as things slow down, you have to start making adjustments.

So I want to show you how I came up with the $1,000. Some of it, in my eyes, is pretty simple math. Let me share my screen and pull out the calculator.

The pricing profile of a clean lot: 2 to 3% per 15-day bucket

Here's a dealer's inventory. This particular dealer has about 300 cars in stock and they're going to sell 300. They only have three cars over 45 days old and no cars over 60. 73% of their inventory goes out fresh, where the gross is, and a very small amount of sales go out on aged cars. I wanted to show you this profile when it comes to pricing, because this is pretty much what you're going to see regardless of the numbers.

This dealer starts out at 99% of market in the 0 to 15 bucket, and then each bucket is about 2 to 3% more aggressive. Every 15 days, every two weeks, if you start at 100%, you should be at about 98% in the next bucket, then about 95 or 96, then 93. Every 15-day bucket, if your inventory is efficient, that's how your pricing should go. You might say, screw that, I'm at 99% until day 30 and then I get aggressive. However you're doing it, I'm telling you, if you're not dropping 2 to 3% every 15 days, you probably have anywhere from 15 to 30% of your inventory older than it should be, and you're not maximizing gross. If you want to challenge me on that, let's do an inventory evaluation. I'll do it live on here if you want to prove me wrong.

This dealer is clean. He's at 99, 95, 90, 92. With only three units in the back buckets he doesn't have to get that aggressive. He can have fun, keep pricing a little higher, and if the sale rate drops we start making adjustments.

The math: $500 in price, $420 to $700 in holding cost

So you're dropping roughly 2 to 3%. This particular dealer's average investment is about 23 grand, which is pretty low, and that's probably why they turn inventory that fast: 300 cars at around 23 grand. Most dealers are going to be around a $25,000 car. Let's do the math. $25,000, adjusting 2% every two weeks, is $500. There's half of the thousand. In a two-week window you're probably going to be, and should be, adjusting your price by about $500.

You might say that sounds aggressive, I usually move it two or three hundred bucks. Well, you're not even keeping up with the market. Typically the market drops 1%. You ever see where you're at 99% of market and seven days later that 99 moves to 100 or 101? You have to move it another 1% just to get back to where you were. So really you need to move 2%. If 99% didn't work for a week and now you're at 100% and you drop it $250 to get back to 99, why do you think 99 is going to work this week if it didn't work last week? Drop it 2% and go to 97 or 98%. You're going to move your price about $500 every two weeks. That money's gone if the car sits there two weeks.

Now the other math: holding cost. NCM has articles on this, but basically you're going to run anywhere from at least $30 a day up to $150 a day for a car to sit on the lot. You could be a dealer who says, I own my inventory free and clear, I own my building, holding cost doesn't apply, I don't pay interest and I don't have rent. Even then you still have an electric bill and internet. You have fixed costs for that facility regardless. So maybe it's $30 a day for you. Most dealers are going to run $50 to $150 depending on the operation. Take $50 a day and that car sits two weeks: $700. So my $1,000 is light. Even at $30 a day times 14 days, that's $420. Add the $500 in price and there's at least $1,000 every two weeks for a car to sit on your lot.

What that does to a $2,000 markup by day 30

Look at your 15, 30, 45 day old cars. Take a 15-day-old car with two grand of markup. If that car sits to day 30, you're going to have about a thousand dollars of profit left after you take out your discount and your holding cost. Some inventory managers don't look at holding cost because they're not paying the electric bill or the floorplan interest or the rent, but the dealer does. There's a fixed expense to this operation. So you want to turn that inventory in the first 30 days, and the goal would be to get 60 to 70% of your sales within 30 days.

You might have five grand of markup out of the gate. Fine. If you have five grand of markup and clean inventory, carrying 100 and selling 100, you have a great operation. But a lot of dealers have two grand of markup, and by day 30 it's gone. Do the math though. This dealer is two grand of markup on a $23,000 car. If your average investment is $40,000, your average markup is comparably around $3,500. By day 30, if you're moving with the market every 15 days, 2% or so, that's the discipline I'm talking about. If you want to carry 100, sell 100, and make gross, meaning 60 to 70% of your sales in the first 30 days, you need to make each age bucket about 2% more aggressive. That's how you keep things clean. Your gross is made on the purchase and how you owned it. Keep that inventory moving.

Even a clean 300-car lot is 25 units heavy somewhere

As good as this dealer is operating, I can find issues on this lot. He's 25 units heavy in 2022s. He's 22 units heavy in large pickup trucks. As efficient as this dealer is, 300 cars, none over 60 days, I'm finding things he could get better at. That's where we come in on the weekly calls.

What do I mean by 25 units heavy in 2022s? Rough math: say he has roughly 50 in stock and he sold 12 or 13 in a two-week window. That puts him on pace to sell 24 to 26 in a month, with 50 or 51 in stock. He's 25 units heavy. He needs to increase his sale rate or those cars will age. We help isolate that problem, and the kicker is we help figure out which ones need adjustments. And if I have a problem with 2022s and I have leads on those cars, let's increase the contact ratio on those leads. At the click of a button I've got the lead information to manage leads based on the situation on the lot.

That's how we help our stores. We do a weekly call. If you're 20 units off pace to sell 100% of your inventory, we need to find those 20 units somewhere. The 2022s are an issue, or large pickup trucks. Isolate that, attack it, get the sale rate back up. Contact customers based on the issues on my lot.

So, a reminder: let a car sit another two weeks and it's going to cost you a thousand bucks. Keep an eye on that. Keep your inventory moving. Get the dealership profitable. A happy dealer makes a happy employee. If you'd like a demo, message me at jrice@lotpop.com or go to lotpop.com or lotwalk.com. The company is Lotpop, the product is LotWalk. Hope you all have a strong tax season.

Transcript lightly edited for readability from the live stream. Watch the video above for Jasen's screen share.

Questions dealers ask about holding cost.

How much does it cost a dealer to hold a used car?

Jasen's working number is about $1,000 every two weeks. It has two parts. First, the price adjustment you owe the market, about 2% every 15 days, which is $500 on a $25,000 car. Second, daily holding cost, which NCM data puts between $30 and $150 a day depending on the operation. At a conservative $30 to $50 a day, 14 days adds $420 to $700, so the total lands at or above $1,000.

How much should I drop the price on a used car every two weeks?

About 2%, which is roughly $500 on a $25,000 car. The market itself drifts about 1% a week, so a $250 cut only returns you to the price-to-market you were at last week, the one that did not sell the car. Jasen's staircase is 100% of market in the 0 to 15 day bucket, then about 98, then 95 or 96, then 93.

What percentage of used car sales should happen in the first 30 days?

Jasen's target is 60 to 70% of your sales inside the first 30 days. A 15-day-old car with $2,000 of markup has about $1,000 of profit left by day 30 once you subtract the price adjustment and holding cost, so the gross is made early or not at all. The clean 300-car dealer in the video sells 73% of its inventory fresh.

Does holding cost matter if I own my inventory and building outright?

Yes, it is just smaller. With no floorplan interest and no rent, you still pay for electricity, internet, and the other fixed costs of keeping the facility open, so Jasen puts that dealer at around $30 a day instead of $50 to $150. At $30 a day a car that sits two more weeks still costs $420 in holding cost on top of the $500 price move.

Why does a used car that sits cost you $1,000 every two weeks?

Five things to take from this tip.

What Jasen covers in twelve minutes.

Where the $1,000 comes from

Half the number: the price you owe the market

The other half: holding cost the dealer pays

What it does to a $2,000 markup

Even a clean lot has heavy buckets

Three moves for Monday morning.

Chart your price-to-market by age bucket

Reprice by 2%, not by $250

Put a daily holding cost on the desk

Where LotWalk fits.

Read the whole tip.

Where the $1,000 every two weeks comes from

The pricing profile of a clean lot: 2 to 3% per 15-day bucket

The math: $500 in price, $420 to $700 in holding cost

What that does to a $2,000 markup by day 30

Even a clean 300-car lot is 25 units heavy somewhere

Questions dealers ask about holding cost.

More Quick Tips

Why is your inventory "turn" going up while sales go down?

Priced at 90% of market and still not selling? 90% of what?

Aged inventory does not start at day 60. It starts in the middle bucket.

Want someone to walk your lot with you?