Tight stock control, together with careful monitoring of forecourt prices, are key to maximising used car dealers' profitability, says CAP Black Book.

Writing in the latest edition, Senior Editor Tony Styles says: “It takes more than healthy retail demand to bring enduring success in the used car business. Internal processes should be tight and efficient to guarantee the best yield.

“Stockturn is one of those areas where much can be achieved to maximise profitability, using either of the main systems. These entail either keeping the car for a maximum fixed period, after which it must be traded on, or simply keeping the car in stock until a retail sale.

“Both have their advantages and it can be wise to mix and match them to ensure the best returns. For example, it is common in fixed period stocking plans for the retail price only to be reviewed toward the end. But this may be too late, especially when sticker price may have been the only obstruction to a sale, or even an enquiry, during the preceding 30, 60 or 90 days.

“Failing to monitor and, if necessary, adjust retail prices during a stocking period severely reduces the opportunity to minimise any loss at the end.

“The alternative method of keeping a car in stock until it sells has the benefit of encouraging regular revaluation and screen price adjustment where necessary. An accounting benefit also stems from this in that, under poor retail circumstances, a smaller depreciation can be written off each month, rather than one large sum at a specific point.

“Whichever way you choose to show the loss makes little difference financially - it is the same loss whether it's split between months or taken at once. But the latter method does encourage closer scrutiny of stock profile. This should always be encouraged because sales staff naturally gravitate towards the freshest cars and their potentially higher earning potential.

“Of course the traditional ad hoc bonus – or 'bonnet' - payment on ageing stock is an effective incentive for a renewed sales push but the argument for keeping an ongoing detailed focus on profile is powerful.

“Identifying reasons for a non-sale is essential in preventing stocking mistakes in future. And profiling not only applies to today's stock. Being aware of historical stock profile and identifying opportunities from customer enquiries is all part of the same process.

“It means not necessarily going out only to source the cheapest cars but to actively buy those you know that people want. In the end, those are the cars with the best guarantee of not outstaying their welcome, regardless of which stocking plan is in place.”