Every showroom has a few cars everyone has stopped seeing. They were bought at a good price, they look fine, and they have been parked in the same spot since before the last festival season. Nobody decided to keep them. Nobody decided to move them either.
Ask how long a used car should sit in stock and you will hear numbers, but they come from someone else's segment, city and cash position. A showroom selling small hatchbacks and one selling luxury sedans should not have the same target. What every dealer can do is count days properly, work out what a day costs from their own books, and set repricing rules from their own history.
Count the days properly
- Start the clock when money leavesDay zero is the day you pay for the car or take possession, whichever is first. Not the day it is ready, and not the day it is listed.
- Split the stagesDays in refurbishment and days ready for sale are different problems. A car stuck with a vendor needs a phone call; a car on the floor for weeks may need a new price.
- Stop it at the saleCount to the booking, and record the delivery date separately. A booked car waiting for a loan is a different queue.
- Group it into bands you choosePick bands that suit your stock, for example up to thirty days, thirty to sixty, sixty to ninety, and beyond. The bands matter less than looking at them every week.
What a day in stock costs
Holding cost is what you spend, or give up, for every day a car stays unsold. Most of it never appears on an invoice, which is why it gets ignored. The parts:
- Money tied upThe car's landed cost is cash you cannot use for the next purchase. If it is borrowed, it costs interest. If it is your own, it costs what that cash would earn elsewhere.
- SpaceA share of your rent, yard and parking. A showroom holds only so many cars, and each slot an old car holds is one a fresh car cannot use.
- Running costsInsurance and PUC renewals, battery charging, washing, the odd tyre that goes flat, moving it around the yard.
- Price driftThe amount buyers will pay for that model tends to fall over time: a new model year, a facelift, a newer car of the same model arriving on another dealer's lot.
- RiskIf you hold a dealer authorisation certificate and have filed Form 29C, Rule 55C makes you the deemed owner, solely responsible for the car's documents and for all incidents relating to it, for as long as it is in your stock.
Working out holding cost per day, with your own numbers
You do not need anyone's industry figure. You need four numbers from your own books. Work them out once, write them down, and revisit them when your costs change.
- 1. Money cost per car per dayThe car's landed cost (buy price plus refurbishment so far) multiplied by your annual interest rate, or the return you expect on your own cash, divided by 365.
- 2. Fixed cost per car per dayAdd up a month's rent, yard costs and the share of salaries that exists because you hold stock. Divide by the average number of cars in stock that month, then by the number of days in the month.
- 3. Running cost per car per dayTake a few months of insurance renewals, PUC, batteries, washing and yard moves, and divide by the total car-days in stock over the same months.
- 4. Price drift per dayFrom your own sales history, compare what the same model sold for when it moved quickly with what it fetched after a long wait. Spread the difference over the extra days. This is the roughest of the four; a rough figure is still better than zero.
Add the four and you have a holding cost per car per day. Multiply it by days in stock and put that figure on every car's record next to its buy price and refurbishment. The first time you do this, look at your oldest car. The number usually ends the debate about whether to cut its price.
When to reprice
Set the rules before the car arrives, from your own history, so repricing is a routine and nobody has to argue for it each time:
- A review date per segmentLook at how long your fast-moving cars in each segment take to sell. A car that passes that point gets a review, not an automatic cut.
- A margin floorWhen the holding cost added since the car was ready has eaten an agreed share of the expected margin, the price moves.
- Forget the days already spentThe cost of the last sixty days is gone whatever you do. Compare the price cut needed to sell now with the holding cost of the days you expect to wait at the current price.
- Fix the cause firstBefore cutting, check whether the car has good photos, is listed everywhere you list, has an honest description and has been shown to the buyers who asked for that model. A price cut will not fix a bad listing.
Remember the tax side when you work out what a cut really costs. Most dealers pay GST under the margin scheme, where the value is the selling price minus the purchase price, so a lower price also means less GST on that car. Our guide to GST on used cars explains the scheme; confirm how it applies to your sales with your CA.
When repricing is not enough
Some cars will not sell at any sensible price on your floor. Moving the car to another branch, selling it to another dealer, or sending it to an auction are all ways to stop the clock. Each has its own cost, and the holding cost figure tells you when that cost is the smaller one.
Then go back to the purchase. A pattern of slow cars from one source, one model or one buyer at the purchase desk is the real finding. Our used car pricing guide covers the four numbers behind a buy price, and days in stock is the one most often left out.
While the car waits
A car in stock still needs looking after. Keep its insurance and PUC current; IRDAI's Motor Insurance Handbook notes that a break in insurance means a vehicle inspection before cover restarts. And keep stock off the road: Rule 55A(7) says an authorised dealer may not park or store inventory for sale on any public road.
Where Kenro Dealership fits
Kenro Dealership keeps each car's stage, from procured to in refurbishment, ready, booked and delivered, so the days in each stage are counted from the record rather than from memory. The owner's reports show how long each car has been in stock and which cars have sat too long, the refurbishment queue shows what each car is waiting for, and the requirements board alerts the team when a car arrives that buyers have asked for. The buy price and refurbishment costs sit on the car's own record, which is where a holding cost figure belongs. See how the stock view works.
Questions dealers ask
How many days should a used car stay in stock?
There is no universal figure. Set review dates by segment from your own sales history, looking at how long your fast-moving cars in each segment take to sell.
How do I calculate holding cost per car per day?
Add four figures: the car's landed cost times your annual interest rate divided by 365; your monthly fixed costs divided by average cars in stock and by days in the month; running costs per car-day; and price drift per day from your own sales history.
Should days in refurbishment count as days in stock?
Yes. Start the clock when you pay for the car or take possession, and track days in refurbishment and days ready for sale separately.
When should a dealer cut the price of an old car?
When it passes your review date for its segment, or when the holding cost added since it was ready has eaten an agreed share of the expected margin. Check the listing and photos first, and ignore the days already spent.