If you’re a used car dealer, you mostly measure success through sales and front-end retail. This isn’t to say back-end services aren’t important, but it’s less common to see reconditioning as a profit center in the same way you track retail gross profit.
You may even see reconditioning as a cost that works against gross profit from front-end operations. The increased cost eating into margins for a used car makes that opinion understandable; however, reconditioning and sales can’t work without each other.
When it comes down to it, there are a few reasons why reconditioning could make it harder to increase profits, but not because of the reconditioning itself.
Used Car Reconditioning as a Profit Center
Below, we will look at common issues with profit, how you you can look at things a little differently, and the tools and practices to make used car reconditioning a profit center.
Common Issues with Profit
- You’ve Paid Too Much Money for the Vehicle. Your dealership purchases vehicles to make money. However, because of the ups and downs in the market, you may pay more than what the car is actually worth to keep your dealership stocked.You should decide the maximum price you’ll pay for a vehicle based on the estimated profit it will net you, considering any additional costs, like transport, fees and reconditioning expense. If the vehicle won’t add value to the dealership, then pass.
- You’ve Spent Too Much (or Too Little) on the Reconditioning Process. With margin compression between a vehicle’s cost and value, you must rethink the reconditioning process. Years ago, it wasn’t uncommon to pay “whatever it takes” in order to recondition a vehicle for it to be front line ready. However, with diminished margins, paying a premium price unnecessarily will impact net profit.You can reduce reconditioning costs without lowering the overall quality. It’s important to only replace parts when necessary and use non-OEM products when it’s safe and appropriate. Don’t cheap out on the important items and make sure the cosmetics are good, as spending too little in these areas can also impact a buyer’s decision when looking at your vehicles, and that can impact your reputation.
Make sure you’re paying your vendors and employees for getting their work done quickly without sacrificing quality. Have a standard for each phase of reconditioning, and hold teams accountable to it. By tracking the time to quality completion, you will be able to reward good producers while identifying bottlenecks.
- Your Negotiations Are Leading to Too Many Discounts. Your salespeople shouldn’t rely solely on landing deals. When you talk about the asking price with a buyer, it’s important to have market and vehicle condition reports and other statistics supporting the number. You need to provide the buyer with the information for why your deal is fair, in line with the competition, but also gives you an edge.
Tools and Practices to Make Used Car Reconditioning a Profit Center
Explore all the technology out there that can make your life easier and your dealership more efficient. When it comes to lowering costs, you want to use the best technology out there to increase efficiency. By doing so, you can cut down on vendor and labor cost management. Turning your reconditioning process into a profit center means using whatever is available to reduce costs and speed up your dealership’s operations.
Workflow is one of the biggest constraints when it comes to reconditioning. So, if you can home in on what’s slowing you down, and get the best technology out, you’ll be able to do organized, quality, work at a much faster pace.
Remember, you don’t always need to approach reconditioning with the “whatever it takes” mentality. Your priorities, outside of sales and profit, should always be to make a car look good and be safe for buyers. However, you don’t need to spend money unnecessarily.
You should do everything that’s required to make it safe and good looking, but don’t recondition what doesn’t need reconditioning, and don’t replace parts unless they need to be replaced. Use non-OEM parts when it’s safe and appropriate. There are many high-quality aftermarket alternatives out there that will save you money without sacrificing safety.
Also look for auto dealership software designed to make running your business easier.
Software can save you time, money and manpower. Good auto reconditioning software helps you and your technicians manage invoices, track vehicles and accounts, and estimate customer prices on your desktop and mobile devices. Paperwork that would originally take hours can be done in as little as five to 10 minutes with minimal effort. You can access your business’ operational information on the fly, increase productivity and manage workflow at the click of a button.