What a Car Costs You for Every Day It Stands

Nobody writes a cheque for standing stock, which is why it never appears in the file. The purchase price is recorded, the workshop bill is recorded, the transfer fee is recorded. The forty days the car spent facing the road are recorded nowhere, and they are frequently the largest single cost on the unit. Imported systems account for this as floorplan interest; here there is no floorplan, which is one of the gaps covered in dealer management systems in Pakistan.

This is an attempt to put a number on it. The number matters because it changes decisions: what you accept on a Tuesday, when you stop waiting for your price, and which car you buy next.

The cost has three parts

Only one of them is obvious.

1. The money is not doing anything else

Capital sitting in a car is capital not sitting in the next car. If it came from an investor, they are expecting a return on it whether or not this particular Corolla moves. If it is your own, it is money you cannot use to buy the unit that would have turned in three weeks.

The honest floor for this is what the money would earn doing nothing clever at all. The realistic figure in the trade is considerably higher, because the whole business model is that capital in a car outperforms capital in a bank. Using the floor keeps the estimate conservative.

2. The car is getting older

Every month on the floor, the unit ages, the odometer story gets staler relative to its year, and the next model year gets closer. On a normal market this is a real and steady loss.

It is worth being honest that this line is not always negative in Pakistan. In periods when the rupee moves sharply or imports tighten, used prices have risen, and a car standing three months has gained on paper. That feels like being right. It is also exactly when showrooms develop the habit of holding, and the habit outlives the conditions that rewarded it.

3. The showroom costs money to run

Rent, security, electricity, the staff who wash and move and show the car. Divide the monthly running cost by the number of units you hold and you get a per-car, per-day figure that applies whether the unit sells today or in November.

Worked on a real-sized car

Take the same car used across this site: bought at PKR 3,200,000, PKR 180,000 of costs, sold at PKR 3,750,000. Gross profit before holding cost is PKR 370,000.

Assumptions, all conservative and all yours to change:

• Cost of capital: 15% a year. Below what capital earns in a working showroom.
• Depreciation: 10% a year on the purchase price.
• Showroom overhead: a floor costing PKR 250,000 a month to run, holding 25 units.

Roughly two and a half thousand rupees a day, on a car nobody is touching.

At seventy-five days the holding cost has taken slightly more than half the profit. At a hundred and twenty days the car has earned about eighteen per cent of what the file says it earned, and the file still says 370,000.

Your break-even day

Once you have a daily figure, you can work out the day a unit stops making money. Divide the expected gross profit by the daily holding cost.

On the numbers above: 370,000 ÷ 2,525 gives about 147 days. That is the day this car has consumed its entire expected profit and begins costing you money to own.

That day is worth knowing per car, because it is not the same for every unit. A cheaper car with thin margin can have a break-even day well inside sixty. An expensive unit with a fat spread can genuinely afford to wait. Showrooms tend to apply one instinct to both, and the instinct is usually calibrated on whichever car burned them last.

What to actually do with this

• Work out your own daily figure once. It takes ten minutes with your real rent and your real unit count. It will not change much month to month.
• Write the purchase date on the record, not just in your head. Everything above depends on knowing exactly how long a unit has stood, and memory compresses time in the direction of comfort.
• Set a review day per car, not a rule for the showroom. Thirty days on a Mehran and thirty days on a Land Cruiser are not the same event.
• Price the review, not the car. The decision at day forty-five is not "what is it worth", it is "what will move it this week, and is that more than what it costs me to keep waiting".
• Tell your investors this number. A partner who understands holding cost stops reading a quick sale at a slightly lower price as you being soft, which is one of the five things that reliably damages those relationships.

Common questions

How much does it cost a car dealership to hold unsold stock?

On a PKR 3.2 million used car, roughly PKR 2,500 a day, made up of the cost of the capital tied up, depreciation, and a share of the showroom's running cost. Over 75 days that is about PKR 190,000, which is slightly more than half the gross profit on a typical unit. The exact figure depends on your cost of capital, the car's price and how many units your overhead is spread across.

How long should a used car stay on a showroom floor?

Until its holding cost starts eating a meaningful share of its expected profit, which is a different number for every car rather than a single rule for the showroom. Divide the expected gross profit by the daily holding cost to get the day the unit stops making money. On a typical PKR 3.2 million car with PKR 370,000 expected profit, that is around 147 days, and half the profit is gone by day 75.

Is it better to sell quickly at a lower price or wait for the full asking price?

Usually quickly, and by more than most showrooms expect. On a car costing PKR 2,500 a day to hold, waiting an extra ninety days for an extra PKR 100,000 loses about PKR 125,000. The higher price produces the worse result. This only reverses in a market where used prices are rising fast enough to outrun the holding cost, which is a condition rather than a rule.