Middle bucket buildup
Happy Thanksgiving. It's Wednesday, the day before Thanksgiving, but I wanted to go over what we're seeing at a lot of dealerships, which we call middle bucket buildup, aging problems happening. I think a lot of people are delayed in making price adjustments, not reacting to the market fast enough, and we're seeing a lot of dealers' inventory building up and getting a little fatter in that middle bucket. When I say middle bucket, I'm talking 30-to-60-day-old stuff. Zero to 30 is your fresh stuff. You want 60 to 70% of your current inventory sitting in that 0-to-30 bucket, so you can sell at least 60 to 70%, if not more, out of that first 30. That's how you get gross and volume.
With that, I would have less than, really no, aged cars over 60 days old. But if you're going to be generous, and in our system we're generous and say less than 10% over 60 days old, that's only because I think there are those oddball cars, lifted trucks and Jeeps and certain vehicles that deserve it, or even a cheap car, an eight grand car where you're waiting for the right buyer or the right bank call if you're working a bunch of subprime people.
What I'm going to share is the active inventory of a dealer I was talking to earlier. We can see and map out how and when all the aging happened. I want to go over how you can clean up your current aged problem, but also prevent it again, and give you some stats on that. The goal is to have at least 65% of your inventory 0 to 30 days old, less than 25% in the middle bucket, less than 10% aged. Those are the goals, and hopefully we outproduce them.
Why the middle bucket matters as much as the first 30
As much as we preach that you want to sell what we call first 30, and have 60 to 70% in the first 30 days, look at this dealer's sales. You want 65% or more of your sales going out in the first 30, and they're only doing 38%. What happened here? There are reasons on this account, but I'm using it as a perfect example. We were mapping this out earlier, and I was saying that middle bucket management is as important, if not more important, than the first 30. Obviously after 30 days your gross goes away. Here's the markup on some of these cars, and after 30 days old we're not making as much gross. We've got to keep that inventory clean, so we put a cap at 25% in that middle bucket.
Right now I'm looking at this inventory based on dollars. You can also look at units. Let me show you the math. Any time this 22% is sitting there, we want at least about 5% or more going out of that bucket, because cars are going to come in and out of it. I know the math doesn't math, but hear me out. If you've got 22% there, you'd better sell more than what's sitting there as cars come into that bucket and leave it. He's doing okay there, but it's not enough. With an aging problem, which he has, you want this 30 to 60 below 20%. Get it in the teens. That's how you stop and clean up your current age issue.
Squeeze it off
Get the 31 to 60 into the teens and out-sell it by at least 5% or more. What that does is strangle off any cars bleeding through and adding to the aging issue. Work out of the aged cars, but they're already aged. If you've got a 70-day car, it's too late now. Focus on the 30 to 60. Don't add to it. In the meantime, start working out of those aged cars. Once you squeeze it off, and it might take you a month or two or three weeks to line this up and get it below 20%, then if there are 10 units aged, decide how fast you want to get off those 10. Do you want to do 10 this month, or five this month and five next month and pace it out? That depends on your budget and where you are financially to take that hit.
The year-long carry graph
Let me prove a point. This is a carry graph, and red indicates aged cars. When did the red start dropping? Right when his middle bucket got below 20%. Once that middle bucket gets below 20%, that's where the age starts going away. Look right here: 31 to 45 was 12%, and 46 to 60 was 6%. So 18% of his inventory was in that middle bucket, and that's when the age started going down. Then 12 and 2, 14% in that middle bucket, and a couple of days and weeks later the red started disappearing. The red went away at 16% middle bucket, because we weren't adding to it.
When did age start building back up? Look at the yellow. 31 to 45 jumped up to 35%. Combine 31 to 45 and 46 to 60 and all of a sudden it's back up into the mid-20s, and look, the age starts coming back. Now we're at 26% in the middle bucket, 29%, and age starts happening. Age went away again as we got down to 16%. But then age started building back up: 24 and 8, 32% sitting in that middle bucket. Only 4% was aged, but look what happened weeks later, 10% aged. Any time the age dropped off is when that middle bucket dropped to 18%. Age went away at 20% in the middle bucket.
But as soon as that middle bucket pops back up, look right here, 42%. This is where gross starts suffering, and this is why you go in and out of these cycles. Now I've got 42% in the middle bucket, 23 plus 19. That means I need about 45 to 47%, half of my sales, to go out of those buckets, which means my grosses are taking a hit. So you overcompensate for a 35-day-old car: it's still only 35 days old, give me a little time, I'm not going to drop the price yet because I don't want to take a hit, my grosses are going down. Then that 35-day car turns into a 45-day car, and the 45-day car turns into a 60-day car, and next thing you know we're back up to 17% aged.
When did the age start dropping? He's down in the low 20s, 20% middle bucket, age starts going down. Then all of a sudden we're back up to a middle bucket of 31%, then 35%, then 45%, then 31%, and then age, bam. Now his age is going away. Why? Because we got the middle bucket back down to 19%. You're going to go through these cycles, but that's how you clean up your age. Squeeze it off. Get that middle bucket below 20% and out-sell it by at least five. Get 18% in the middle bucket selling 25% out of there. You don't add any more aged cars, you clean up the age, and then from there on don't let that middle bucket get above 25%. As soon as it gets into the low 20s to mid-20s, it's a domino effect. Two, three, four weeks later we've got a big aging problem again. This maps it out over the last year, and you can see it happen time and time again. Middle bucket's down to 22, 23%, the age goes away, and then bam, back up again.
How to attack: the 16-to-30 cars
That is how you clean up your aged inventory and prevent it from aging again. But anything could be causing this. How do you know where to attack? This one is pretty easy. Look: 29% of his current inventory is sitting 16 to 30 days old, but right now he's only selling 24% out of that bucket. If he doesn't increase that sale rate, they're going to add to his 31 to 45, which is at 22% right now. If I don't increase the 16 to 30, that 22% is going to jump over 25%. So isolate the 16-to-30 cars and start attacking from there.
Isolate those cars and figure out what adjustments you need to make. Find out which cars you need to attack out of that bucket. Figure out whether it's a pricing problem based on how cars tend to leave your lot first, before you look at the market. But also, is it a people problem? Do I have leads that no one's following up with? Do I have leads on these in-stock cars that are 16 to 30 days old? If I do, I should be reaching out every two to three days on those leads and increasing the contact ratio before I decrease the pricing. Your price should be the last lever you pull.
I hope this was helpful going into the holidays. Hope everybody has a blessed Thanksgiving and a strong finish to the month. It should be a good little push with the Black Friday holiday weekend, get some traffic and sell some cars rolling into December and the end of the year. The older I get, the faster these years go by. I'll put one out next week too. I want to see the repercussions of this going into next week, give you an update on what we see our dealers doing and whether they had a big push, and you can compare it to what happened at your store. Again, happy Thanksgiving.
Transcript lightly edited for readability from the live stream. Watch the video above for Jasen's screen share.
