A used car standing still: how to work out what it really costs you
The purchase price is not the cost of the vehicle. A method and a formula to work out your real carrying cost, and to set a threshold that triggers a decision.
In short
- Carrying cost adds up finance, depreciation, fixed costs and opportunity cost.
- Finance is worked out by the day, not by the month.
- A stock-age threshold is only useful if it triggers an action decided in advance.
- Margin has to be read against days in stock, not on its own.
The purchase price is not the cost
A vehicle bought for €20,000 and sold for €22,500 does not produce €2,500 of margin if it sat on the forecourt for four months. In between, it consumed cash, lost value and took up a space. That is what is called carrying cost, and it is rarely worked out because it appears on no invoice.
The four elements
- Finance: capital tied up has a cost, whether it comes from a stocking loan or from your own cash.
- Depreciation: a used vehicle loses value as time passes and the model year moves on, regardless of mileage.
- Fixed costs: the space on the forecourt, insurance, keeping it presentable, re-photographing it.
- Opportunity cost: the space and the money tied up in this vehicle are not tied up in another that would have turned faster.
The formula
The easiest element to put a figure on is the finance, and on its own it is often enough to change how a file reads:
A worked example: a vehicle bought for €20,000, financed at 6% a year, costs 20,000 × 0.06 ÷ 365 ≈ €3.29 a day. After 90 days, the finance alone has consumed roughly €296. Add depreciation and the cost of the space, and the margin showing on the file is no longer the one you take in.
These figures are an illustration of the formula, not a market average: put in your own rate and your own price, because the result only means something on your own data.
Setting a threshold that triggers a decision
Measuring stock age is pointless if no action is attached to it. A useful threshold is one that triggers something decided in advance: repricing, re-advertising with new photographs, moving it into the trade, or taking the decision to get rid of it.
What to look at every week
- The average age of the stock, and how it is spread — a respectable average can hide a few very old vehicles.
- Total capital tied up, against your finance facility.
- Real margin per vehicle, read against its days in stock.
- Vehicles missing from the marketplaces, which by definition cannot sell.
On the same subject, in the software
Stock control in Cleclic