Used Car Holding Cost Per Day: How to Calculate It

Holding cost is the money a car costs you simply by sitting on your lot. It rarely shows up as a single line on a statement, which is why it gets ignored. When you put a daily number on it, decisions about price cuts, wholesale and buying get much easier.

What goes into holding cost

Holding cost is the sum of several separate costs that all keep running while a car is unsold. Not every lot has every item, so build your own list from your actual expenses.

• Cost of money: interest on a floorplan or line of credit, or the return you give up on your own cash
• Insurance on the inventory
• Lot rent or mortgage, utilities and security attributed to the space
• Ongoing upkeep such as washing, battery care and moving cars
• Listing or advertising costs tied to the car
• Depreciation, the gradual loss in what the car is worth as it ages

How to calculate it

Start with the monthly total of the carrying costs you can measure, divide by the average number of cars you hold, then divide by the days in the month. That gives you a per-car, per-day figure. Then add an estimate of daily depreciation for the type of car you sell.

Cost of money is the easiest piece to calculate directly. Multiply the money in the car by your annual interest rate, then divide by 365.

Be honest about which expenses really scale with the number of cars. Rent does not drop when you sell one more car, but spreading it across your average inventory shows what each parked car is costing you and helps you see the cost of keeping space occupied by a slow seller.

A worked example

This is a hypothetical example for illustration. Suppose your monthly carrying costs are $2,400 for rent and utilities, $600 for insurance and $300 for upkeep and listings, which totals $3,300. You carry an average of 25 cars. That is $132 per car per month, or about $4.40 per car per day.

Now add cost of money. If you have $10,000 in a car and your money costs 9 percent a year, that is $900 a year, or about $2.47 a day. Add a rough depreciation allowance of $4 a day. Your estimated holding cost for that car is about $10.87 a day, which you might round to $11.

Example numbers only. Use your own expenses, rate and car values.

What the number tells you

At roughly $11 a day, a car that sits 60 days has cost you about $660 beyond what you paid for it and fixed up. A car that sits 100 days has cost about $1,100. Put against an expected gross of $1,800 or $2,000, that is a large bite.

Keep in mind that these figures are estimates. Their purpose is not accounting precision but a sensible yardstick, so a car that is aging stops feeling free. Revisit the number once or twice a year as your rent, rates and inventory level change.

The number also gives you a way to compare choices. If a buyer offers $400 less than you want today, and you expect the car to take another 40 days at $11 a day to sell at full price, waiting costs $440. Taking the offer now may be the better financial move.

Using holding cost in daily decisions

• Pricing: build a realistic number of days to sell into your target gross.
• Price cuts: compare the size of a cut with what each extra week of waiting costs.
• Wholesale: weigh a wholesale offer today against retail later, minus the daily cost of waiting.
• Buying: favor cars you expect to sell quickly, since slow cars pay more holding cost.

Keep your per-car costs together

Holding cost is easier to apply when each car's other costs are in one place. A dealer management system tracks cost, auction fees and repairs per car, shows inventory age and status (In Stock, Reserved, In Service, Sold), and gives profit and loss and inventory reports to see what aging cars are doing to your results. You can record wholesale sales as well when you decide to move a car. DMS Apex is $28 a month flat with a 15-day free trial.