“Dude, Where’s My Car?”
While I have never seen the movie “Dude, Where’s My Car?” it is the appropriate title to emphasize why it’s important to conduct physical inventories of your vehicles on a regular cycle. Once a year is simply not enough. I’ve worked with stores that have a really good process in place so that someone on their team is touching every car every month to make sure they don’t lose any vehicles. Then there are others which have the misguided belief that it is a total waste of time.
How does a store lose a car? It’s a simple process, right? The new car process is that the vehicle is delivered from the manufacturer, it gets a PDI, and then sits on the lot until sold. Used cars get delivered from the auction or another third party, they go to service for inspection and repairs and back to the lot until sold.
Many a manager believes that a physical inventory is simply not required. They know what they own. They walk the lot daily. They can see it in the finance or inventory reports of the Dealership Management System (DMS). They are sure they know where everything is. And my personal favorite excuse is “the floorplan vendor checks inventory every month,” so I would know if there were a problem.
This thought process has far too many holes in it. First of all, your floor plan vendor doesn’t care about your inventory beyond what they have as collateral. Unless you floor 100 percent of all new and all used vehicles, including wholesales, you can’t use this as an excuse not to conduct physical inventories.
The floor plan vendor representative has a list of vehicles you owe them money for. They do not have a list from your DMS. Their job is to make sure you (and they) still have possession of anything on that list, and if you don’t, their job is to make sure you pay it off in a timely manner.
If you floor all new-vehicle inventory, it can be hard to convince a manager that they need to check inventory physically, however, I’ve seen stores resolve bad VIN number issues this way. A list from the DMS will show a VIN that doesn’t match a vehicle. If you sell the unit before it is resolved and a bad VIN will create lot of bad paperwork, including title work. Correcting a VIN on a titled-vehicle is not a pleasant event, as it takes considerable time and can tank your CSI.
I’ve also had a client discover they had a vehicle stolen this way. Do you know how foolish you look if the floor plan vendor finds a missing unit and you can’t explain where it is? It’s been stolen, and you have no idea when.
There’s another reason why this task is important — theft of items from the vehicles but not the theft of the vehicle itself. In Texas, a few years ago, new truck tailgates were being targeted by thieves. By taking a physical inventory, someone is forced to walk the entire lot and is much more likely to discover this type of theft sooner. The floor plan vendor finds the vehicle on the lot just fine without the tailgate, and they don’t even ask why the tailgate is missing.
Now, let’s look at used-vehicle inventory. The first issue is that in most dealerships, not all used vehicle inventory is floored. Remember the floor plan vendor has a list of vehicles floored and that’s the only collateral they care about. If you have another half a million in inventory, they don’t care. When you take a general ledger list to check vehicles on the lot you often find missing units, it is the “Dude, Where’s My Car?” search at that point.
Where oh where can the vehicle be? In the service or detail department is the preferred answer and in this case, everyone breathes easier. But unacceptable answers (and true stories) are:
- At a sublet provider that someone forgot to pick up weeks ago because it wasn’t on an RO.
- Out with a customer that was supposed to be back by now. Their vehicle is in the shop and finished, but why pick up your beater with a high bill when you can drive a better vehicle?
- At the home of a salesperson who was not authorized to drive a demo.
- At the home of a technician who had wrecked his personal vehicle and needed something to drive.
- It was purchased at auction or from a rental car company weeks ago, but never received.
- It’s a trade that was never delivered to the dealership by the customer.
- It’s a trade that the store was supposed to arrange to pick up but failed to do so.
- Sold by an employee who was wholesaling your trades on the side, because they knew you didn’t track them well.
Then there is the ledger side of the topic that can create issues.
- It’s a vehicle that was purchased at auction, failed inspection, and was sent back to the auction, but no one notified accounting.
- The vehicle was sold months ago, but someone posted to the vehicle stock number in error.
- The vehicle was sold, but the cost of the vehicle was not relieved from the ledger for some reason.
- The customer came back for policy work after the sale, and the repair order was closed incorrectly creating phantom inventory instead of charging to policy.
As you can see most of these reasons have a cost to the dealership. Some, like those from the ledger side, can be an indicator of a broken process that needs to be addressed.
A physical inventory can also identify inventory on the lot but not on the books. This can occur when a deal has been reworked several times, and in the process, the trade, which was accepted by the dealer did not make it on the final posting to the ledger. This also means the gross profit of that deal is most likely wrong.
It can also happen when there has been a delay of some sort in getting the proper paperwork to accounting. The car gets delivered, but accounting has no cost to set it up with.
Physical vehicle inventory also uncovers service customer vehicles that have been abandoned and forgotten on the lot.
The last reason you need to conduct a physical vehicle inventory regularly, but certainly not the least, is that it is the only way your controller can complete a thorough reconciliation of all inventory and floor. It’s one thing to reconcile inventory to floor (that’s similar to what the floor plan company does), but a complete process involves making sure the general ledger list of inventory also matches the physical vehicle inventory at your store.