Ever find yourself in a serious jam because of neglected details or failure to plan? I have — and the pain and cost of operations are always regrettable. Get stuck between a rock and a hard place more than once and integrity sinks (not to mention, perhaps, your business).
We’re entering a time again where that dangerous spot between that rock and a hard place is staring dealers in the face. The heat is already on, and some dealers are jumping out of the hot water and taking action. I fear too many will not, however, preferring to mush on until the water boils and it is too late.
Dealers must have a strategy for engaging, profiting or reversing:
• Electric vehicles and how their “mechanics” will alter your service department
• The influence of retail innovators like Amazon, Apple and others
• Margin compression
• Vehicles as subscription products and how that model will affect customer retention. Automotive News reporter David Sedgwick, covering industry trends, writes that, by 2030, dealers will generate revenue from three sources:
– Mobility services, which include fleet management and subscriptions
– Service and maintenance
– Consumers who buy vehicles, then rent them out when they aren’t using them.
“There is a catch, of course,” he writes. “This business model favors large dealership groups that can afford the staff, training and facilities to service large fleets.”
Individual dealers themselves can do little about most trends, but dealers can and should be proactively managing margin compression. For the near future, dealers will still profit from the reconditioning and resale of used vehicles.
Recon and used cars represent the most immediate and most practical investment of time and resources available to a dealer for pulling cost out of the dealership and recovering a phenomenal return on investment. No other useful discipline the dealer can embrace will return this level of profit.
From our work with a thousand dealers, we know that a rapid reconditioning focus will drive significant incremental profit. By using workflow software to continuously improve recon processes, dealers who eliminate even two or more days off a typical five- to 10-day cycle will be richly rewarded. Two additional turns on 100 cars with a $1,500 (average) gross is a gain of $25,000 a month — a huge ROI for a monthly price of a set of mid-grade tires. Where else can you get a $50 return for $1 of spend? For smaller volume dealers, the performance is still incredible — $15 for every $1 of spend.
This return is not merely related to a strict monetary ROI. The tracking, measurement and reporting tools built into a rapid reconditioning model change behaviors, replacing blame and finger pointing with a process structured so the individuals doing the work control their accountability. This change creates a new culture of fairness and an empowerment shift — the ability for your human capital to prove they are doing good work as compared to their peers.
When you get cars through recon faster so their depreciation and holding costs decrease and you sell them more quickly the savings become sandbags in a levee — protection again margin squeeze. It’s how dealers like the Hendrick Automotive Group position their stores for competitive success.
“With shrinking margins, it is absolutely critical to turn inventory quickly and get fresh cars to the front line fast,” said David Nelson, market area director of pre-owned vehicle operations for the Hendrick Automotive Group. “Used cars are a fungible asset, depreciating every day. We make our most profit on used cars the first 21 days we own them. Recon that takes 15 days dilutes a car’s selling sweet spot, leaving just seven days of optimum retailing time.”
Dealers are increasingly starting the online merchandising process when cars first come off trade or transport. Use the trade walk to acquaint staff with incoming inventory. An “appearance” detail gets these vehicles quickly ready for photography and their listing online. Dealers who do this report retailing from 15 to 40 percent of their used cars before those units are fully reconditioned.
Despite the forecasts, the auto retail industry isn’t moving from buggies to horseless carriages tomorrow. For decades yet to come, you’ll show up and conduct business much as you do today. So, while working deals, managing inventory and focusing on service volume and effective labor rates, keep an eye on what’s coming. Read magazines like AutoSuccess to learn about new ways to sell and service customers, listen to 20 Group solutions and investigate technologies designed to improve your processes, so more gets done for less.
Before the water boils in your pot, assume you’re in it up to your neck already and make rapid reconditioning a priority.
Dennis McGinn
