Getting used cars ready for resale is so time delicate that even a few hours’ delay tarnishes their value.
Luxury vehicle dealers in possession of data confirming this reality say they’re working hard to get luxury model trade-ins into mechanical inspection and cosmetic detailing faster, so they are sale-ready as quickly as possible.
Their reasons for getting cars through reconditioning in less time means business, they say:
Driving this enhanced used car efficiency and profitability for any dealership is a commitment to applying to the business the most significant commitments determining used car profitability, speed to sale, which proper recon time to line or T2L launches.
“Used vehicle sales are about velocity – sourcing the inventory and getting those vehicles ready for resale as quickly and efficiently as possible,” said Justin Hoisington, pre-owned operations director for Hennessy Jaguar-Land Rover of Duluth, Georgia.
“We’re constantly trying to figure out how to increase our efficiency, and it’s imperative we get used vehicles ready to sell because we don’t have them ready to sell it does no one any good,” said Geoff Meeker, general manager for Mercedes-Benz of Buckhead of Atlanta, Georgia.
Speed to sale
“We see now where used car department profitably improves significantly over status quo where speed-to-sale strategies are applied to reconditioning time-to-line automation,” said Dennis McGinn, founder and CEO of Rapid Recon.
The reality of today’s used car business is speed matters – it matters more than ever, and speed to sale enhances the profit potential dealers expect from using an automated inventory management tool, McGinn said.
“In the car business,” McGinn added, “life begins at a sale. The industry has focused too much on vehicle provisioning, which while important, is routinely a once-a-week event, and consists primarily of going back to the same sources Monday or Tuesday and acquiring the same vehicles. Selling goes on all day, every day — and to sell more cars faster at higher gross, it is speed to sale, not provisioning that determines success for a used car department.”
As speed of sale has its roots in expedient recon, T2L, itself a time-based motivator, is a process discipline that structures, organizes and encourages the multiple steps and people necessary to transform trade-ins, private-party purchases and auction vehicles into eye-appealing, like-new, ready-for-retail vehicles for merchandising online and on the lot. By implementing T2L technology disciplines as part of used car practice, dealers reduce recon turnaround time from days to hours; a 72-hour turnaround is the ideal.
Time is No Luxury
Dealerships using manual recon management assists such as Google Docs or spreadsheets find those tools too static to help with managing a multi-step, multi-process function such as vehicle reconditioning. Dealers using T2L recon automation typically reduce 10-to-21-day recon cycles.
“The ideal and achievable recon cycle under T2L speed-to-sale practices managed by recon workflow software is 3 to 5 days. T2L may be longer for luxury vehicles, given the often receive the highest level of recon to meet the higher standards the buyers of those brands and from luxury dealerships that sell them,” McGinn said.
In reconditioning, time not only influences recon cycle speed but also how a depreciation value known as holding cost erodes sale margin. Holding cost is defined by dealership benchmarking firm NCM Associates has a $40 per day per car holding cost. Luxury vehicle reconditioning hold costs can be more, by as much as two times the depreciate assigned to non-luxury models.
At a $40 holding cost, a 10-day recon cycle equals a $400 charge against sale gross on every used car the dealer retails. By using reconditioning efficiency tools such as T2L, that 10-day cycle can be reduced to 5 days, reducing holding cost erosion against sale gross by half.
Where faster T2L is at work in recon, the reduction in holding cost erosion to sale gross is evident.
“Our time to line before Rapid Recon was 8 to 18 days; dealers who think their time to line is faster than that kid themselves. I’ve worked for some whose detailing took 8 days alone!” Hoisington said.
Time is Money
Many managers miss the importance of why faster recon matters because they don’t understand cash flow or its significance to dealership vitality, said Joe Lescota of Joe Lescota Management Education & Training Co.
“Faster turn is paramount for luxury car dealers, especially, given their higher cost of inventory, which means higher floor pan and thus higher inventory holding costs, which is why faster recon is so important – it’s about cash flow,” Lescota said.
His team specializes in providing financial statement analysis, variable operations consulting and training to dealers, concentrating in used vehicle operations.
“Import dealers spend more for reconditioning because their market and their customer demands more, but they often allow more dollars for recon than many of these cars will require,” Lescota said. When that number appears in appraisals, it can mean undervalued trades that cost the dealership business. “This happens because managers don’t look at recon as a return on investment but rather an expense.”
He pointed out that 58 to 64% of the recon expense the service department will charge the used car department is profit to the dealership, as actual recon hard costs are solely parts and labor. “This is why recon must be kept in-house,” Lescota said.
Other cash flow benefits that recon tools provide dealers include vehicle locators, so vehicles get into recon fast and they give managers near real-time costs related to each car. When the sales department has to wait for R.O. and other recon expenses to be collected to complete a customer transaction, recon expenses can be missed. This can require a wash down charged off as Policy Work on the financial statement. When done, this loss affects the dealership’s profitability but not the manager’s who should have caught those expenses before finalizing the vehicle transaction.
“That recon tool is essential as it allows maximum dollars to be earned for your cars,” Lescota said.