Every Day on the Lot Has a Price

Floorplan interest is the obvious carrying cost, but it is one piece of the equation. As inventory ages, interest continues to accrue, and depending on the floorplan arrangement, curtailments may require the dealership to put additional cash into the unit. Meanwhile, employees move the RV, clean it and maintain it. The RV occupies lot space and uses floorplan capacity that could support something else. It also remains part of the dealership’s physical damage exposure to hail, wind, theft, vandalism and other losses. Insurance belongs in that calculation. Changes in inventory levels and values can affect a dealership’s overall exposure, so dealers should understand how inventory is reported, what limits apply and whether their coverage still reflects what is sitting on the ground.

Perhaps the biggest carrying cost is that the market keeps moving even when the RV doesn’t. New model years arrive. OEM incentives change. Competing dealers adjust prices. Consumer preferences shift. And sometimes the first markdown available today is considerably cheaper than the markdown required six months from now.

Protecting gross has a cost. The question is whether the gross being protected is worth what the dealership is paying to wait for it.

Inventory Turn Changes the Economics

Dealers now have access to more inventory information than ever before. They can increasingly understand days’ supply, comparable units in the market, pricing position, geographic demand, historical retail performance and how quickly specific models and floorplans are turning.

That makes inventory turn especially important. How quickly does a unit turn back into cash? A fast-turning RV frees capital, floorplan capacity and lot space, and creates an opportunity to generate profit.

A slow-turning RV does the opposite. That doesn’t make every slow-moving unit a bad investment. Some units deserve patience, and some specialty inventory can justify waiting for the right buyer and defending gross. The important thing is knowing the difference before the unit becomes aged inventory. Sometimes the mistake isn’t buying the wrong RV — it is buying too many of the right RV. A dealership may have demand for a particular floorplan without needing four or six. Inventory depth is just as important as product selection.

The Desk Should Know the Cost of Waiting

This isn’t only a purchasing or accounting conversation. Sales management should understand it, too. When a deal comes across on an aging RV, the question is, “How much gross are we giving up if we take this deal?” Other questions should be: “What is it costing us to keep this unit, and what could replace it?”

Suppose accepting $2,000 less today moves an aging RV and frees the capital and lot position for something with stronger demand. The next unit creates another opportunity for front-end gross, F&I income, parts and accessory sales, service work and potentially another trade.

That trade matters. A thinner deal on an aged new RV may bring in a highly desirable used unit that turns quickly and generates additional gross of its own. Now the decision is no longer about protecting $2,000 of front-end gross on a single VIN. It’s about total-deal profitability and what that same capital could earn next.

Don’t measure an aging unit only against the gross you hoped to make. Measure it against the profitability of what could take its place. Sometimes waiting makes sense, but sometimes taking the deal, turning the inventory and redeploying the capital is more profitable. The discipline is knowing when to defend margin and when to turn the asset.

Run the 90/180-Day Test Before You Buy

To bring the conversation back to the launch season of the new model year, manufacturers need production commitments, and dealers need desirable inventory. Those interests often align, but they do not always align perfectly. The manufacturer needs to move production. The dealership owns the carrying cost.

So before committing to a unit, ask: “What happens if this RV is still here in 90 days?” and “What is our plan if it is still here in 180?” Consider the floorplan expense, possible curtailments, insurance exposure, maintenance and handling, competing inventory, model year changes, market incentives, depreciation and the discount that might eventually be required to move it.

Then compare those costs with the expected total gross and realistic turn of the unit. This does not need to become a perfect accounting exercise; the goal is simply to make the cost of ownership visible before the purchase order is signed.

For one RV, the answer may be to take it. For another, take one instead of four. For another it may make sense to locate or trade for when customer demand develops, and occasionally, the most profitable inventory decision may be not to buy it.

One Question for the New Model Year

Inventory that turns at an acceptable margin is the engine of an RV dealership. Inventory that doesn’t turn becomes interest expense, potential curtailments, insurance exposure, maintenance, depreciation, discount pressure and trapped capital. It can also become a missed opportunity to own something more profitable. Inventory is not profitable simply because the dealership bought it well. It becomes profitable when the dealer buys the right unit, in the right quantity, turns it in the right amount of time and generates enough total gross to justify the capital it consumed.

Be sure to ask not only: “How many of these can we get?” but also “How many of these should we actually own?” That may be the more profitable question.