Managing modern pre-owned operations in a profitable manner has become an increasingly difficult venture in today’s competitive and aggressive market. With increasing costs for the acquisition of market priced, fast turning inventory and higher costs to transport, recondition and bring that inventory to front line condition there must be a constant review of pre-owned processes in place.
In this article I examine four ways that dealerships can manage and improve their profit margins without eroding customer experience or the quality of vehicles.
1. Reducing Throughput Times
Holding costs increase relative to overall costs on an annual basis as well as repairs and reconditioning becoming more expensive it is more important than ever to move your new inventory through service and clean up as rapidly as possible. When examining your throughput times, it’s critical to track and monitor how long it’s taking to effectively move vehicles through the transport, service and detail procedures. There is a hidden margin erosion in holding cost days that should be considered when examining your processes. Each additional day that it takes to complete inspection, repair and reconditioning an average calculated cost of $34 a day continues to mount. Closely examining time delays and reducing those bottlenecks without sacrificing quality is the leading way to improve your “time to market” for pre-owned vehicles and reduce overall costs.
2. Service Repair Approvals
The greatest mutually beneficial relationship in pre-owned operations is the one that pre-owned has with the service department and vice versa. These two departments support each other and both drive value to the overall dealership. Service is the number one provider of services for the pre-owned department and pre-owned is the best customer for the service department. Even though these departments are mutually beneficial they are not always working together dynamically.
Often times, the service department has to seek approval for even common tire and brake replacements on pre-owned vehicles. Ask yourself if these approvals on common repair orders for tires, brakes and other items that are common are necessary. Determining specific thresholds where tires and brakes are necessary repairs for safety, it makes sense to give service the ability to approve those repairs based on the thresholds without pre-owned approval for each repair. Service having the ability to approve the most common repairs based on thresholds will considerably speed the throughput times.
3. Reconditioning Vendor Review
It’s a likely that your pre-owned department is utilizing the services of a reconditioning vendor to outsource common services such as detail, dent removal, bumper repair and wheel refinishing. It’s a great exercise to examine those costs on a monthly or quarterly basis and carefully review the policy in place for pricing structures. Monitoring and tracking the cost, turnaround and time it takes to provide these services will likely show room for improvement. There are often processes put in place by your vendors that make procedures much easier for the vendor but may limit your ability to rapidly get the repairs and reconditioning completed.
The first step in improving these vendor relationships is to analyze how much work is being provided to the vendors and how long the work is taking to complete on a per car basis. Providing incentives for increasing the speed of these repairs and keeping the quality intact will have a significant effect on efficiency and subsequently profitability.
4. Alternative Inventory Sourcing
Reducing throughput time directly increases your inventory turn by keeping fresh inventory flowing into the pre-owned department. Sourcing inventory exclusively through auctions can take days, even weeks by the time the inventory has been properly inspected and reconditioned. Trade in vehicles can be reconditioned more quickly but often are not the market oriented, fast turning vehicles targeted by dealerships.
Implementing a strategy and process for acquiring private seller vehicles in your market is an effective strategy for improving your average throughput time and increasing profitability, by purchasing from private party sellers you are eliminating a large percentage of the time it takes to get vehicle’s front-line ready and the dealership has the ability to target the highest return on investment, fastest turning vehicles. There are a number of effective tools available to dealerships for sourcing and acquiring private seller vehicles in your respective markets.
Pre-owned efficiency isn’t all that different from a professional baseball team managing a season. Both are based on averages and should be viewed as marathons not sprints. Baseball seasons consist of well over a hundred games throughout a season, when a strategy is implemented and followed along with a consistent review of processes and their results it’s possible to incrementally improve a baseball team’s performance throughout a season. The same is true with a pre-owned operation, consistent and effective review of your processes can increase your profitability by incrementally improving your pre-owned department effectiveness.