Garza Automobile Dealership, Inc. (GAD) buys and sells a variety of cars made by Perez Motor Corporation. GAD maintains about 30 new cars in its parking lot for customers' selection; the cost of this inventory is approximately $750,000. Additionally, GAD hires security guards to protect the inventory from theft and a maintenance crew to keep the facilities attractive. The total payroll cost for the guards and maintenance crew amounts to $80,000 per year. GAD has a line of credit with a local bank that calls for a 12 percent annual rate of interest. Recently, Tom Randall, the president of GAD, learned that a competitor in town, Hanna Dealership, has been attracting some of GAD's usual customers because Hanna could offer them lower prices. Mr. Randall also discovered that Hanna carries no inventory at all but shows customers a catalog of cars as well as pertinent information from online computer databases. Hanna promises to deliver any car that a customer identifies within three working days.
Required
a. Based on the information provided, determine GAD's annual inventory holding cost.
b. Name the inventory system that Hanna uses and explain how the system enables Hanna to sell at reduced prices.