It is becoming increasingly critical that dealership operators recognize how reconditioning practices affect bottom line profitability. Unstructured and unmonitored recon practices create waste and costs that erode used car gross.
On the other hand, GMs will transform their recon operations into profit centers when they use a time-based, continuous improvement strategy to drive this critical function. The result will be cars frontline ready in fewer days. That cuts costs and improves margins.
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A GM’s Challenge
As sales slow, a recon center is fortified against margin squeeze when using best practices held accountable by workflow software. Time spent now evolving recon in this direction will:
Getting recon operations to this performance level is a GM-level responsibility. In other words, the GM builds teamwork to support better recon outcomes. Make this team from those responsible for trade-ins, auctions, service, parts, sublets, body shop and the used car department.
This best practice yields results for the Fred Martin Superstore, located in Barberton, Ohio. “Everyone here who works with used cars knows that the faster we can get them to the lot the better chance we have of selling them at the highest gross profit,” said General Manager Tom Dunn.
“If the general manager is not involved in one of the highest-profiting departments in the store, you might have the wrong GM,” Dunn said.
Basics to Master
These are the fundamentals to address for the changing marketplace:
Time-to-Market — This is the time, in days, required for recon to get vehicles frontline ready. Assuming the time-to-market clock starts when vehicles enter recon, the goal is to complete this service within three to five days. The industry average is five to 12.
Holding Costs — Each unit you purchase until sold depreciates at a rate of $32 a day. The cost is each car’s share of the floorplan, advertising and other expenses. Slow recon causes these costs to mount up, which reduces gross when those vehicles are sold.
Inventory Turn — Every 2.5 days shaved off recon time converts to one additional inventory turn. The more turns, the more costs will adhere to market values, meaning market-priced stock that sells faster. “Faster recon means greater front gross profits,” said industry trainer Tommy Gibbs of Tommy Gibbs and Associates. “You cannot drag your feet, even for an hour.”
Accountability — Performance data captured by recon workflow software gives GMs proper oversight of each step of recon operations. Research consultants McKinsey & Company has noted that accountability helps others understand what is expected of them, exercise authority and take responsibility for delivering results.
Closed-Loop Teamwork — When everyone who touches cars understands and “sees” they are part of a closed-loop workflow system, operational friction will lessen and recon hours will go down. Automated tracking keeps management informed about delays and where inventory is at each stage of your process — whether it’s in the flow or forgotten on the back lot.
Recon as a Profit Center
J.D. Dantzler, GM for Manly Honda, part of the Manly Auto Group in Santa Rosa, California, already runs a tight recon operation. “That means we monitor how long it takes us to move a car from acquisition to the front line,” he said. “The used car manager is required to pay attention to exactly how long it takes to get vehicles to the lot.” Dealers seeing shorter front-end margins with a strict 60-day turn have recon processes that consume too much of inventory’s highly profitable zero-to-14-days retail.
Where time, methods and results are not measured, most certainly recon operations are leaking time, slowing turn and eroding retail gross. However, recon operations using a time-to-market strategy see the following benefits:
GMs find hidden profit in their recon operations when using a time-to-market mindset. This time-based way to manage measures every step, process and labor input to get vehicles frontline ready in three to five days. A recon department run by the numbers will be profit driver for the dealership, whatever the season or market.