Dale Pollak created the game-changing Velocity model, which advises dealers to manage vehicle inventories as asset investments by studying the market and reading the data to know whether those assets are the right ones for their dealership and their market.
Whatever inventory management software you use — or if you perform your own version of “velocity” — your business depends on using the most current data daily for acquiring, pricing and merchandising your used inventory. Most franchised and volume-driven independent dealers are using this strategy today to improve used car profitability.
The route to an even more profitable used car operation, however, is found when a velocity strategy is supported by faster reconditioning output that increases turn.
Let me reinforce that strategic reconditioning workflow tools and time to line (T2L) disciplines make modern velocity-based inventory management most effective for a dealership.
A T2L reconditioning culture shaves time, streamlines processes and structures and organizes the many steps required to move vehicles from acquisition to the sales line more quickly. The ideal is three to five days.
Every dealership should know its measurements for their reconditioning process. The proven way to gain this insight and these metrics is by using real-time user-connected workflow. By applying “stopwatch” accountability to recon processes, we know precisely how to manage the recon process through mechanical, cosmetics and photography. When you can measure something, you can manage it to achieve the results you desire.
As this pertains to inventory management technology, consider this:
You spend at least $2,000 a month for inventory management software to get the right cars into inventory; these tools, however, were not designed to proactively measure and manage T2L. The data tells us, where a $500 monthly investment in T2L workflow software isn’t being used, inventory management tools give up one to two turns.
Two additional turns on 100 cars at $1,500 gross on each vehicle equals $300,000 a year, or $25,000 a month — a remarkable ROI. for a monthly T2L software investment of $500.
Where else can you find a verifiable way to get a $50 return on every dollar spent?
A two- or three-turn increase will happen when recon operates to T2L standards. Even for a business selling 50 used cars a month, improving turn by one day will generate a $15 return for each $1 spent.
It’s not just us saying this about the value of rapid reconditioning to modern inventory management systems for improving used car profitability:
• “We pay particular attention to days’ supply of our inventory, and practice a velocity-based model, a time, and age-sensitive inventory method,” said Ted Chapman, CEO of the Chapman Automotive Group. “If I can reduce inventory aging as a result of a more focused and coordinated reconditioning process, I’m buying time. As a group that once took an average 11 days to get vehicles from acquisition to the sales line, cutting that time in half gives us another week of action with that asset.”
• “Inventory management tools aren’t as helpful as they can be if cars are hung up in the recon process,” said Rod Rowley, senior vice president for the Larry H. Miller Group of Companies. “These tools are more effective if you also have efficient reconditioning pushing inventory into these systems faster.”
Here is how a T2L workflow culture completes velocity and benefits your used car operation:
• It defines work to be done to achieve a specific outcome and brings clarity to processes and procedures — who is doing does what, when and in what timeframe.
• It identifies critical steps in each process and alerts management to any actions to eliminate to speed workflow and remove cost.
• It assigns people having the right skill sets to the correct task assignments to ensure workflow efficiency and quality.
• It builds rhythm-and-flow into the work — and confidence in those individuals challenged with delivering faster T2L.
Completing velocity also drives benefit for essential dealership personnel:
• GMs, because workflow software and T2L management improve system transparency and creates accountability, process measurement and control make reconditioning more efficient, and increases in inventory turn improve dealership profitability
• Owners and group managers, because their GMs will be sharper operators when stores have better T2L and faster, more efficient and more profitable used car operations
• Fixed operations and service managers, who will now have tools for resolving guesses, communications frustrations and finger-pointing
• Controllers and CFOs, who now have visibility into recon performance and data to validate results
If you’d like to learn more about this value proposition, request my new book, Recon T2L: The Starting Line for Reversing Margin Compression, at the address above. Be sure to include your full name, title and your dealership’s physical mailing address.