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Jim Leman

Jim Leman Writing about dealer operations

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Used Car Managers Improving Recon to Fight Margin Squeeze

At NADA, I stopped some dealers walking the Moscone Convention Center to ask them about their concerns and strategies for used car performance in 2019. Those interviews appeared in Auto Remarketing magazine.

Now, with this new article for DrivingSales, I want to focus on reconditioning practices as a used car profit-making tool. This topic also made the bucket list of several dealers’ spoken to at NADA.

Dennis McGinn, the guru of rapid reconditioning practices, says dealers who implement T2L (time-to-line) disciplines to recon get cars from auction transport and trade into recon and back out the door much faster. Faster recon is essential, because in recon, cycle time relates to used car profitability. 

Ed French, president of auto consultancy AutoProfit and a member of the Board of Directors for TruWorth Auto with locations in Indianapolis and Kokomo, Indiana agrees.

“Empowerment of your recon department can supercharge your inventory turn,” he said. “Most recon departments are ‘handcuffed’ when it comes to decision making and left to negotiations between managers who want to keep the grips on their side, whether fixed operations or sales.”

Time is Money

As McGinn tells AutoSuccess magazine for an upcoming column there, dealers who implement this strategy in their stores realize savings of $18,000 a month or more. He cites a Florida BMW store enjoying a $1 million-a-month savings! Send an email for that report.

Abdulla Abbadi, pre-owned manager at McGrath Arlington KIA, in Palatine, Ill., told Automotive Remarketing improving recon was a 2019 goal. “Like all dealers, we want to buy the best car for the money, and because we want to keep reconditioning costs down, that means we have to buy as clean a car as possible,” he said.

John Napoleon is dealer principal for Carson Car Center Hyundai in Nevada. He said faster recon is a critical discipline. The faster a dealer can get cars from acquisition to the sales lot, the more opportunity a dealer creates to sell cars earlier in their prime retail window, he said.

Consider the cost of slow recon.

It adds a considerable financial burden to each vehicle as it meanders through recon. This time it takes a car to get from auction or finance and logged into your recon system carries with it a per-car, per-day cost. NCM Associates reports this cost at $40 per day per car. A 10-day recon puts a $400 "load" on each car. That load reduces sale gross by that much.

It means getting cars sale ready while they’re still their freshest. Today’s prime 21-day retail window even a 10-day recon cycle closes that window by half.

  • It means you have to stock more cars to sell more cars. Faster recon improves inventory turn so your dealership can sell more cars without having to stock more cars. This reduces floorplan costs and ensures your inventory is the freshest. Fresh metal sells faster than aged metal.

 

Position for the Market

While used car sales will likely remain strong in 2019, price pressure may eliminate some margin. To combat these factors, do what is practical and possible to reduce recon costs. Selecting cars that will need less recon to be sale-ready is one tactic. However, when CPO and off-lease cars are sold, the remaining inventory is not likely to get by with just basic mechanical and cosmetic recon before they’re ready to be sold.

Therefore, be prepared for the used car sales opportunities 2019 will bring your way.

The National Automobile Dealers Association has predicted 2019 SAAR at 16.8 million annualized, down from 17 million in 2018.  NADA Chairman Wes Lutz noted that while 2019 will “be a robust year [for new-car sales], he is “concerned about ‘price creep’ that could take some consumers out of the market.”

This ‘creep’ has been happening for some time, as new-car prices now run about $35,000. Experian noted the monthly new-car payment of $530, an all-time high, outpacing the average used-car payment of $381 as of the third quarter of 2018.

“The gap between the price of a new and used vehicle is as wide as it has been in years, pushing an increasing number of consumers into the used-car lot,” noted the Wall Street Journal. In fact, estimates are 39.5 million consumers this year will purchase used vehicles.

This is good news – but to maximize you opportunity, work smarter.

Profit-Centered Recon

The recon practice-improvement strategy worked out by McGinn is an automated reconditioning workflow improvement system, validated for dealerships of all sizes and markets, franchised and independent, and even for Buy Here/Pay Here.

This practice, called T2L, McGinn says, addresses most dealers’ current pain points, such as:

•             Knowing where all your cars are

•             Improving gross profit

•             Reducing inventory volume and costs

•             Eliminating recon approval conflicts between the used car and fixed ops managers

•             Instituting accountability and verifiable metrics, including vendor services

Dustin Ireland, a former Kansas City firefighter, leverages faster recon’s benefits for Instant Auto Credit, with locations in Lee’s Summit and Liberty, Missouri, and in Olathe, Kansas. He handles dealership operations while his business partner Nathan Anderson, once a schoolteacher, manages inventory acquisition and sales. Russ Meyer is a silent partner. Today, the three Instant Auto Credit locations retail 180 vehicles a month.  

“Old-school methods just couldn’t keep up with our increased recon volume,” Ireland said, “so I started looking for a product that would eliminate the guesswork and confusion of tracking vehicles through recon. Eighteen months ago, we implemented a rapid reconditioning T2L workflow system."

T2L is more than a practice — it is an automated way to take waste out of recon operations, plug in continuous cycle improvement and unify the team around a structured process of work steps and work tasks that organizes their day, helps them work smarter and faster and reduces your T2L to three to five days.

“Our time-to-line has decreased 35 percent. Our holding costs have also declined as a result, and we have increased inventory turn by getting more cars to the front line in less time,” Ireland said.

Dan Oakes operates Oakes Auto, the Kansas City area’s largest independent dealer. “Because dealers don’t actually write a check out of the business account for holding costs, they don’t see what recon delays can cost them,” he said.

“Old-school dealers focus on overall front-end grosses. If they instead were to concentrate on improving recon and inventory management, front-end gross would be better, and inventory would turn faster.

“Managing recon processes for efficiency is the main focus here because a car is not for sale until it’s shown online or on the lot. The holding cost clock starts once I own the unit. We are very mindful of its ticking,” Oakes said.

“Remember,” French said. “These things we sell have wheels on them for a reason. Keep them turning!”

 

 

 

 

 

 

Mark Rask

this is a great aproach

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