Calculating the daily cost of your inventory

Calculating the daily cost of your inventory

Daily cost of inventory can vary from one dealership to another.
But at a general level, there are three key components that constitute a majority of the cost
They are as under

Finance Cost  - A vast majority of new or used car dealerships are using some kind of financing to acquire their inventory. 
There is a direct cost associated with that financing. Even if you are self financing, you should use the amount you would have to pay a bank if you were using financing.
If you are giving up the potential to generate return on your investment in the stock market or in municipal bonds, you should make atleast that back if you are financing your own inventory.

Depreciation  - For every day that your inventory sits on your lot, it depreciates.
The actual dollar amount of depreciation is dependent on the price and age of the vehicle.
You can use the Black Book Wholesale values as your guide in calculating depreciation.

Opportunity Cost  - This is probably the toughest factor to quantify. To make the quantification easier, identify your average vehicle turn rate and your average net revenue on deals
Your average turn rate is 60 days (2 Months). 
That means you could turn over six cars a year from that space. 
If you net $1,800 per deal
Your opportunity cost for that space is 6 x $1,800 or $10,800. 
Divide that by 365, and you get ~$30 per day. 

Total Carrying Cost = Finance Cost + Depreciation + Opportunity Cost

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