The Good Fight Against a Rising Tide

The Good Fight Against a Rising Tide

Managing the recon operation to manage holding costs is a car dealer's best offense against margin compression.

If you want to manage inventory holding costs and bolster your earnings per share, consider how your used car reconditioning operates.

When recon is run well, it is dialed in and efficient. Cars get sale-ready within three to five days of acquisition. Dialed-in means keeping every step aligned with a three-to-five-day time-to-line standard.

When you scan the broad landscape of recon processes, a few common traits emerge. The most dialed-in operations have consistent times and roles, handing off each completed recon step to the next phase in the chain from start to front-line ready.

Those who use the scoreboard as a monthly progress metric have more consistent three-to-five-day time-to-line. These vehicles retail faster, which means more margin and cash flow are flowing back into your operation.

With 20% margin compression with us again, faster reconditioning reduces inventory holding costs. Well-run reconditioning can reduce holding cost margin erosion by half or more. Managing the recon operation to manage holding costs is a car dealer’s best offense against margin compression.

“There’s a pressing need for dealerships to expedite vehicle sales to reduce inventory holding costs,” said Gina Cocking, managing director and CEO at Colonnade Advisors LLC.

However, you cannot eliminate holding costs; you can only reduce them by selling cars faster. Pivotal to faster turn is efficient vehicle reconditioning. You add one turn of inventory for every 2.5 days you speed up recon.

You manage your holding cost and resist margin compression when you:

1. Review your market appeal: Stock your brand and sandwich those cars between non-brands offering a level below your brand and one level above. Ruthlessly adjust pricing by day 15 and sell them by day 31. You’re buying the wrong cars if this isn’t consistently happening.

2. Use reconditioning software: Reconditioning software tools help you diagnose used car workflow bottlenecks and delays in real-time so you can resolve issues that otherwise will slow inventory’s speed to sale. The goal is to get cars front-line ready within three to five days of acquisition.

3. Use your data: Recon software reports, or those you compile manually, provide a glance at how holding costs are trending within your group and its stores. The data highlights these costs on a macro level and reveals sluggish steps within the process driving these costs up. Now you know what to tweak or which people to challenge to improve.

Two additional cost-control reports in recon software help you manage time to line and improve aging. The former is the guard dog for recon operations, as it tracks group and group store speed to sale. The aging report, often color-coded, highlights areas of concern:

Alerts you to vehicles in recon requiring immediate interaction and resolution to ensure their speed to sale, and

Alerts vehicles’ mechanical, detail and parts departments arriving from trade or acquisition, allowing for better workflow planning, parts coordination and technician scheduling results.

Shaving time is always in vogue, but it is an essential fire-fighter when margin compression lurks as it does today. Saving .02 time across several steps within a high-volume reconditioning operation adds real money, a real fight against the rising margin compression tide. That’s the margin you save. Think about that. We all like to imagine ourselves as on top of the details that matter to the business, but there is much control, and margin, to be earned when you turn to and trust the performance reports within your reconditioning software tools.

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