While the flow of off-lease vehicles continues pouring certified pre-owned (CPO)–quality cars, SUVs, and trucks onto dealers’ lots, which depresses used car prices and competes against their new-car models, a prudent used car manager sharpens his pencil—his reconditioning pencil.
Used car sales will continue upward throughout this year, riding on the wave of off-lease vehicles now pouring into dealerships, and that volume and availability will dampen used car prices.
Dealers have a one-two effect happening here: declining new-car volume and more competitive used car pricing, which both pressure dealership profitability.
These dynamics are requiring dealers to sharpen their merchandising and selling strategies, and use inventory management tools more expertly to ensure turn, best market pricing, and inventory acquisitions.
Don’t underestimate the role expedited reconditioning can play in improving used car margins and reducing overhead costs. These expenses, called holding costs, will erode dealer gross unnecessarily if not managed.
Rapid reconditioning practices are as valid for a large-volume, 600-cars-a-month operation as for a dealership that reconditions 50 cars—and it works for franchise, independent, and buy here, pay here dealers equally well.
At first blush, the rewards you will reap from expediting your reconditioning may not be clear, so let’s get specific.
Here’s what we know about these five benefits from the experiences of more than 1,000 dealerships in the U.S. that practice rapid reconditioning.
1. Faster time to line (T2L)
More efficient, software-driven reconditioning helps a dealer get cars from acquisition to retail-ready in as little as three days.
Without this automation, a dealership will be taking, on average, eight to 20 days to get cars ready for the sales lot. With the prime retail window at 21 days from acquisition, tying up even 10 days in recon is a profit killer.
2. Increases inventory turn
Every 2.5 days shaved off the recon cycle equals one additional inventory turn. More turns mean more fresh stock.
Tom Kelley Chevrolet in Decatur, Illinois, for example, sells about 170 used cars a month but never stocks more than 125. Faster turn positions inventory for changing market demand. According to NCM Associates, the market shifts every 21 days.
3. Boosts sale gross
Time depreciates used car values, even as vehicles make their way through recon. This daily per-car holding cost rate is $40. A 10-day T2L, therefore, equals $400 per vehicle.
By managing time to line to just three days, this depreciation alone drops to $120. That is considerably less erosion against sale margins.
A realistic five-day T2L improvement in recon time would generate $30 billion a year in recovered time, labor, and dollar waste for the industry. At the store level, this number is about $1 million a year.
Is this worth your time? How many more cars would you have to sell to make $1 million in gross—or how much expense would you need to cut to achieve the same amount?
4. Improves workflow and communications
Dealers that lack recon automation tell us the finger-pointing, frustration, delay, and lost cars make their reconditioning inefficient and a headache.
In contrast, recon workflow software structures this multistep, multilayered, multidepartment function and streamlines it.
Cars flow through quickly. Everyone involved knows his or her job activities, how much time they have to complete their tasks, and where the vehicle moves to next and to whom.
Managers have smartphone access to this data to monitor and manage recon from anywhere. When workflow and communications improve, everyone benefits.
5. Sells cars more profitably
Many dealers tell us they image and upload data on incoming vehicles as they offload them from transport, or when they’re released from finance.
The cars then go through routine reconditioning—although from 15% to 40% will sell before thorough reconand at a higher margin. Margin hold is best when cars sell within 21 days of purchase.
Slow T2L can mean cars get to the sales line already having lost more than half of that prime selling time. In today’s efficient market, taking seven days to recon a car leaves only 14 days to earn your profit. That is no way to run a used car operation.
Proper recon oversight is a dealer’s most significant opportunity to flow more margin to the bottom line, and yet it often is treated as an afterthought.
Dealers, now more than ever, need to grasp the potential of rapid reconditioning. It is increasingly crucial at a time when new car sales are tapering off because of CPO and other used cars are taking center stage for the next few acts.
Dennis McGinn is founder and CEO of Rapid Recon, the industry’s most advanced time-to-market workflow tool for auto dealership reconditioning and used car departments. Read more reconditioning best practices in his latest book, RECON T2L, The Starting Line for Reversing Margin Compression. Visit www.rapidrecon.com.