How a dealer tackled inventory problem

Eric Robare thought he knew how to balance supply with demand. Then the Great Recession hit, forcing him to devise a whole new game plan.

"We found ourselves in a position after the business downturn that made us realize we really needed to tighten up our processes for inventory management and control," said Robare, sales manager of Kelly BMW in Columbus, Ohio.

Robare and many other dealership managers learned to pay close attention to inventory management during the recession. But then as the economy recovered and new-vehicle sales soared, some got away from that discipline as they became more confident that cars and trucks on their lots would find buyers.

Today, even as the pace of volume growth slows, some automakers have continued to crank up production, in some cases creating a glut. When that happens, those factories urge dealers to take more cars, through incentives, strong-arming or both.

But for dealers, too much of something isn't always a good thing. So smart dealership managers are remembering the lessons they learned. For them, stocking the right vehicles at the right time allows their stores to turn inventory quickly and profitably.

"We frankly don't accept as much inventory as others, and it's a daily management [exercise] for us -- a big part of our DNA," said Michael Gruber, general manager of Paul Miller BMW in Wayne, N.J., about 30 miles northwest of Manhattan.

Robare, an avid Ohio State Buckeye fan, turned to football for inspiration on inventory management fundamentals. He cites a quote seen in locker rooms across the country: "Tough times don't last ... tough people do." 

During the recession, Kelly BMW was forced to get tough with expenses at every level, including inventory control. That toughness has helped to carry the retailer into the good times. 

The dealership sells about 900 new and used vehicles a year and has increased its inventory turn rate, or the number of times within a year that the dealership depletes its inventory. 

Robare's store has a lease penetration rate of 62 percent. For that reason, the dealership is able to manage some inventory by early contact with its loyal customer base. The dealership starts contacting those customers about 120 days before their lease expires to get a sense of how many replacement vehicles to order. 

"As sales manager, I pay close attention to how our in-stock cars are ordered," said Robare. "We put a lot of time and effort into making sure we are ordering the right mix of cars."

He actively uses BMW's inventory priority ranking system. Say a dealer has a dozen 3 series in stock and 10 more on the way, and knows that is too many. That dealer can rerank those en route to slow their delivery for up to 60 days.

From there, adjustments can be made to dealer stock so that BMW knows whether to ship vehicles immediately or delay them.

Robare uses that system to divert, delay or put vehicles into what BMW calls its allocation risk pool. Dealers around the country can pull from that risk pool.

The advantage to Robare in managing his stock with BMW's system is that if a certain model starts to stack up, BMW may throw incentives on it.

"Guys like me get those cars knowing they might be a better deal than some other models," said Robare.

But there are still cars he shies away from, say a rear-wheel-drive hybrid, which is in low demand in the four-season Midwest.

"A rear-driver like that could sit for six to nine months," Robare said. "We'll opt to put it back into the risk pool. The last thing I want is 250 cars on the ground and more coming in that we can't manage."

Paul Miller BMW averages a lean 46.2-day supply of new car inventory, well below the industry norm of 60 days. As of June 1, BMW brand dealerships' inventory across the U.S. stood at 38 days, down from 55 days on May 1, according to the Automotive News Data Center. 

"We've been much more diligent with our inventory than other dealers," said Gruber. The dealership has to be, he said, because "most manufacturers are overproducing." 

The dealership, part of Paul Miller Auto Group in New York, sells around 1,800 new and 1,300 used vehicles annually. 

Gruber assesses his stock daily, checking how many cars are in stock or on the way. He tweaks the intake of cars to a manageable level, keeping his floorplanning costs low. 

On a monthly basis, he examines which vehicles are hot sellers to order more of them. 

"We order the cars with the most common equipment and do an analysis each month to make sure we are hitting our target," Gruber said. "If we see an available option growing in popularity, then we adjust."

Paul Miller BMW's sales mix is weighted heavily toward X-series crossovers and the 3- and 5-series sedans. But, like Kelly BMW, it struggles to sell diesels, electrics and hybrids. Gruber attributes that in part to lower fuel prices right now.

Similar to Kelly BMW, Paul Miller BMW has a lease penetration rate of nearly 90 percent. Gruber also is aggressive in trying to get customers out of their leases early and into new or used cars.

Gruber has to be aggressive. Tight inventory management is his edge.

"We probably have five [BMW] dealers in the top 25 in America, all within a 25-mile radius," Gruber said. "That makes it a really dense and competitive market."