Sourcing your stock. Where from? Perhaps the most important question. Part 1

I once spoke to a used car dealer in New Zealand.  I asked where he was sourcing his stock (used cars) from.  With his fears that I was a salesman trying to change his status quo, he quickly replied that he sourced his cars from one of the very large importers into New Zealand, at their stock yard in Auckland, New Zealand.   And, that he was very happy with the relationship, thank you very much!

My next question was “How sales were going?”

His reply was “Sales were terrible.”

Something to do with the weather, or the downturn in New Zealand, or something (the moon perhaps, tides?)..

He didn’t go the extra bit to connect the two questions together.  Just perhaps he was sourcing his stock (used Japanese cars imported from Japan) from the wrong source.

Without naming companies let’s have a look at the source of this used car dealers stock.  This large export company purchases these vehicles in Japan and then immediately makes them available on their homepage, at whatever price they like.  If this car exporting company thinks their purchase was a bargain then they will sell it at a much larger margin in their own stock than they actually purchased it for.

They are a large company and they need to do this to survive.  Simple commissions are not enough for them in this economy and they need to make that plus alpha as much as possible.  Their goal is their profit and not the end users profit (in this case the New Zealand car dealer).

Let’s imagine this exporting company buys 50 cars a day for the New Zealand used car market (or any market).  Of those 50 cars, there may be 10 cars that will sell very quickly, highly suited for the New Zealand market.  Through much research they know their cars.  They are like Google, they have they client orders, they can see and use their clients information and capitalize on it.  They sell these vehicles at higher margins to what they could be bought directly from the auctions, so the profit margin of the New Zealand used car dealer diminishes.

Now we have 40 cars left.  From these 40 cars, the better of these are bought in Japan by other New Zealand dealers.  What is left for the exporting company’s stock yard in New Zealand?  Boring, standard, plain, common vehicles that could sit in a dealers yard for a month or may be a year!  Well why buy these used cars, they don’t seem to be good stock right?

Good question!  The large car exporting company knows this weak side of their equation, so what do they do?  They need some sort of incentive for their dealer network to buy these stock standard boring cars, that the public basically don’t want to buy.  The incentive is credit.

Because many dealers have gone belly up in New Zealand (and other markets), the New Zealand banks will not lend to them.  They may have $500,000 worth of stock on their yards, but the New Zealand banks will not lend them a cent.  The large car exporting company capitalizes on this and gives the New Zealand dealer a line of credit on the car they are selling …. can you see where the story goes?   Can you see the stranglehold these large exporters exert on the weakened New Zealand car dealers?  I also know that the large used car exporters from Japan also have their strong links to the New Zealand debt collecting companies.  It is a no-win scenario for the New Zealand car dealers that you definitely don’t want to try to compete in.

So how can you win as a small car dealer in New Zealand or any other country facing a similar situation?  Join us in the next blog for some great ideas.

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