Used Car Dealer Inventory Management
https://accountingsolutionsltd.com/accounting-articles/used-car-dealer-inventory-management/ Inventory management in the used car dealership industry This really doesn’t come down to valuation...
Inventory management in the used car dealership industryThis really doesn’t come down to valuation.
If you open the lastest auction results catalog from Milwaukee, it should give you a decent idea what your inventory is worth. Used Car Dealer Inventory Management industry is where profits are made or lost.
Let’s illustrate this with an example. There are two things working against you. First, used cars generally go down in value, rather than up over time. We’ve certainly seen markets where this was not the case. The Cash for Clunkers Program certainly restricted supply substantially which increased prices. We also have the income tax refund market which pushes demand in the first part of the year. But generally, when you buy inventory it goes down in value, rather than up.
In addition, this money has a time value. Whether you used your own money to purchase the vehicle or you used conventional financing or a floor plan, the purchase money has a cost.
For our example lets assume three things. First that the vehicle cost after auction fees, transportation and set up is $15,000 and that in a good market you will be able to sell it for $16,800. Second, that the cost of capital is 10% annually. Third, that the value of the vehicle is going down $100 per week.
Here’s the point. If you hold on to the inventory too long, without either selling it or taking it back to the auction, you are naturally going to lose money.
The answers to these questions really come down to years of experience in the car business. Don’t try to do this yourself. As highly qualified and recommended CPA’s and EA’s in the Chicagoland Area, we have developed reasonable answers to these questions which have produced consistent profits for our clients. The Used Car Dealer Inventory Management section of this page may have what you need. Whether you have a new business, an audit, need returns filed, or just a second opinion, we can help. Call or e-mail one of our industry specialists today. We have the experience necessary to handle your accounting needs.
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ABOUT THE AUTHOR
Chris Amundson is the President of Accounting Solutions Ltd., a full service public accounting firm of Certified Public Accountants and Enrolled Agents handling the bookkeeping, accounting, tax preparation, and audit representation needs of Businesses, Estates, Trusts, and Upper Income Individuals.