Our old nemesis, margin compression, is revisiting this spring. It’s possible not to notice if you’re continuing to operate under bull-margin mentality.
For such dealers, this new margin compression will be painful.
Automotive retail commentator and dealership performance consultant Ed French cautions dealers to liquidate one- and two-year-old cars through the retail channel now. He said wholesale won’t be productive for this action, as it battles compression issues itself.
“New-car volume by April is expected to be 3 million additional vehicles on dealers’ lots, suddenly giving buyers more choice. With the spread $800 to $2,000 between new and one- and two-year-old inventory, purchased at inflated 2021 money, dealers must retail out of those cars now,” French told me on New Year’s Eve, 2021.
As dangerous to retail profitability as margin compression is, also threatening dealerships is a culture inebriated on good-time fumes rather than sobering up now to reinstate operational disciplines and best practices. It was such discipline and adherence to efficiency processes and standards that strengthened dealers against margin compression before — and will again.
Sharpen your competitive tools now. Review best practices with staff. As reconditioning is the engine room that drives your competitiveness, get refocused on recon speed to sale, driven by time to line and average days in recon efficiency metrics.
Sharpen those tools and practices for the return of margin compression:
• Establish best-in-class reconditioning standards, from acquisition to vehicle sale, using time to line and average days in recon performance metrics. Know where every car is on the lot or in processes and look at your recon costs. Eliminate parts and labor inefficiencies, reduce holding costs and enhance communications and teamwork throughout variable and fixed operations to show recon’s contribution to your bottom line.
• Use reporting tools religiously. The most useful ones deliver real-time continuous metric updates via email to operating managers. Instant decisioning data on mobile or desktop provides tactics for out-smarting margin compression.
• Buy and trade cars smartly, considering all elements to wise decisions. Buy or trade knowing these cars’ reconditioning costs, sale histories, aging data and sale-price points. Steer outcomes from these vantage points.
• Recognize and manage holding costs — rapid reconditioning that drives speed to sale radically reduces holding cost depreciation.
• Use recon intake detailing and mechanical inspection sheets so cars move forward today rather than tomorrow or Monday.
• Add recon-centric virtual vehicle presentation tools that build trust in and desire for your used cars — whether online or on the lot. Help customers feel secure and protected because you can share with them details about how you reconditioned the car they’re evaluating. Deliver vehicles so customers enjoy a more pleasant and reassuring purchase.
• Drill salespeople on people-handling, the sales-to-service handoff and how to present visual reconditioning details that build value and confidence in your used cars and your dealership.
If you’re reading this before NADA in March, be sure to visit us and integration partner iPacket, both at NADA Booth 4731W.
