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7 Calibrations Necessary to Improve Used Car Profitability

Do your buyers and appraisers know how to buy and appraise, so the vehicles they acquire contribute and do not detract from your retail profit potential?

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Dennis McGinn is the founder and CEO of Rapid Recon

A malfunctioning cam sensor makes a car engine sputter. Using wrong fundamentals prevents golfers from driving for show and putting for dough. An improperly calibrated reconditioning department siphons profitability from their used car department.

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One core calibration governs all seven. This initial calibration is shortening the time it takes the recon shop to get cars sales-ready. This adjustment is called time to line (T2L). When we discuss T2L calibration, we mean:
1. How many days on average is it taking to get all used cars from acquisition to customer-retail-ready?
2. At any hour, on any day, can recon staff or your used car manager tell you where, precisely, inventory is located — whether in the recon shop, at a sublet or on the back lot?
3. With a quick glance at your smartphone, can you and your sales managers identify where that inventory is in this process, from inspection to the sales lot — or delayed for parts or other reasons?
4. Do you know what your recon process costs the dealership per day per car; do you see how this affects sales gross?|
5. Do you know which employee is responsible for the next step in your process — and can you determine precisely how efficiently that individual is doing that job — and does that knowledge provide intelligence to help them improve?
6. Do your buyers and appraisers know how to buy and appraise, so the vehicles they acquire contribute and do not detract from your retail profit potential?
7. Are your GM, used car manager, service director and recon supervisor on the same page about priorities, approvals, bottlenecks and workflow speed?

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Let’s calibrate each of these:
1. Recon Cycle: Most every recon department will overestimate its efficiency. There are human reasons for this, but the primary culprit is the recon cycle isn’t measured using a reliable or actionable method. T2L defines this cycle. That definition is determined most accurately by using workflow software that applies structure, accountability and clock-time accuracy to each step of every vehicle flowing through recon. When T2L is applied to most dealerships for the first time, operators are shocked to learn their best T2L estimates are off by many days. On average, most pre-workflow-software T2L times — when everything is accounted correctly — are eight to 20 days. This lengthy T2L burns up used car profitability. GMs who manage T2L to a three- to seven-day window put fresher inventory on the front line, increase inventory turn and experience more sales gross.

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2. The 5 W’s: You must account for every activity and individual related to reconditioning — the who, what, when, where and why questions. Only then can you calibrate and set these activities and resources for faster T2L results. Rapid reconditioning disciplines provide the reporting to know these factors in real time.

3. “Smart” Tracking: Recon moves too fast and involves too many moving pieces not to monitor and manage it closely, constantly. Not knowing inventory details when a potential customer calls about a vehicle causes missed opportunities. Lose track of recon processes, workflow and people and recon performance wanes and cars are forgotten at sublets or the back lot. Mobile T2L VIN scan and QR code convenience helps catch these delays so you can respond fast to prevent costly profit losses.

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Trent Waybright, vice president of pre-owned operations for Kelley Automotive Group, Ft. Wayne, IN, calls this calibration the “hot potato” of rapid reconditioning.

“Nobody wants to be responsible for holding up the process. We’re certainly seeing how its use is increasing turn and improving grosses for Kelley Automotive,” he said.

4. Holding Costs: According to NCM Associates, holding costs for most domestic vehicles is approximately $40 per day per car. A lower average T2L means decreased holding costs and increased turns of used car inventory. Given this calculation, when you eliminate six days from your T2L of 100 units at $40 daily per car holding cost, a dealership saves $24,000 a month, or $288,000 a year. The key to holding cost control is faster reconditioning — reducing days in recon to three to seven.

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5. Accountability: Accountability is critical to making recon workflow work correctly. Instead of demanding accountability, many dealers seem stuck accepting best guesses based on technician polls or “gut feel,” resulting in efficiency-destroying friction and blame. The challenge here is that accountability can be hard to calibrate. How do you promote accountability when avoiding it is the norm? Traditional recon is a self-perpetuating problem that needs an innovative solution. Workflow T2L software
breaks recon into individual steps, tasks and personnel assignments and monitors and reports their progress. Everyone involved knows who is doing what and when — and what the next steps are.

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6. The Right Acquisitions: Educate your buyers and appraisers about reconditioning costs so they are better skilled at assessing how recon costs for those vehicles may affect profit potential. Have a recon department manager familiar with collision repair experience educate buyers and appraisers about how to identify body issues that may require extensive repairs. Even fast T2L may not overcome wrong acquisitions to make a profit for the dealership.

7. The Right GM: While both fixed ops and used car managers are actively involved in recon in a rapid reconditioning culture, the GM usually first recognizes the operational and financial impact of this new process on the organization. Hence, the GM is most often the culture driver from the start. If your GM isn’t involved in one of the highest profiting departments in the store, you might have the wrong GM, or your management team is avoiding reality. 

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Click here to view more solutions from Dennis McGinn and Rapid Recon.

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