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Leaning Into Leaner Times

Dealers who use T2L speed-to-sale methods to get cars sale ready in three to five days find that their efforts translate into a faster sale at higher margins with more inventory turns, whatever the market.

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Whether the used car business hits a significant slump in coming quarters or not, it’s time to make use of that possibility as an incentive to tackle those improvement projects and plans you put off when sales are comfortable. 

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Most SAAR (seasonally adjusted annual rate) estimates peg sales at around 16.8 million for 2019 — but you’ve known that from your own new car sales, despite heavy manufacturer incentives. Higher new car selling prices, some consumer confidence jitters and the attractiveness of today’s used cars will continue to pull shoppers to your used car inventory.

Recent demand for used cars has forced sale prices up and put pressure on used car supplies, especially for the model years most franchise and larger independent dealers prefer to inventory. To supplement traditional supply sources, dealers should also be sharpening up their “look-to-book” performance to capture more preferred trade vehicles for the used car lot. NADA tells us off-lease returns peaked over the summer months with nearly 4 million units coming to used lots in 2019, but that off-lease inventories will “remain robust” for some time.

Efficiency improvement in most every area of dealership operations can mean profitability or loss; this is especially true when lean times threaten. For example, getting inventory sold, even two days sooner, can improve measurable savings in floorplan interest, holding costs and used car per-vehicle revenue and inventory turn.

One delaying factor, not as obvious to many, is how logistics frustrations in the car-hauling industry are causing some dealers a significant delay in receiving vehicles from auction. Again, when you desire to measure your used car operation on a time-to-line (T2L) basis to speed the sales process, delays that are seemingly out of your control can be a headache. It’s a fact that a shortage of truck drivers and a loss of carriers in recent years, driven by electronic log legislation and increasing operating costs, have lowered the current capacity of the shipping industry.  

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Jon Burkeen, corporate velocity manager for the 18-store Hudson Automotive Group, is seeing the complication of transport issues for his stores, which purchase between 600 to 1,200 vehicles a month.

“I know that right now transportation should be a three-day process and it’s become a six- or seven-day process,” Burkeen told me. “Whether we’re buying from 200 miles away or 600 miles, it seems the closer we’re buying, the longer it takes, and I don’t get that.

“We don’t buy 10 cars anymore in the same place,” Burkeen continued. “We buy one or two here and there, and that’s the biggest hindrance. Transportation is a headache; we’re transporting 450 to 550 cars a month, and we’re using probably 300 to 350 different transportation companies to do that.”

Hudson Automotive and its corporate velocity manager understand well the economics of time when it comes to running a more profitable vehicle reconditioning business. T2L defines the spread of time in days from vehicle acquisition to when it is released for sale. Within this “spread” is a phase called Days in Recon.  

Every car a dealer owns carries a $40 per day holding cost on it. This cost starts from its purchase date and accumulates each day until it is sold. These holding costs erode sale gross, so every day a dealer can save in holding costs by getting cars sale-ready faster is that much less margin erosion. 

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Burkeen manages T2L in this area by using digital dispatch tools to improve transport load and delivery cycles. Dealers who use T2L speed-to-sale methods to get cars sale ready in three to five days find that their efforts translate into a faster sale at higher margins with more inventory turns, whatever the market.

The market is changing — and margin squeeze continues from multiple sources, some of which you do have a level of control over, and some you don’t.  Dealers who sharpen their T2L practices improve communications, augment their vehicle tracking capabilities and get recon repair approvals almost instantly. By improving speed-to-sale, dealers run lean organizations always prepared to lean into leaner times should they come — and they will.

Click here to view more solutions from Dennis McGinn and Rapid Recon.

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