Dealers and Greek Philosophers Want to Know
Who knew that Aristotle, the philosopher from Greek antiquity, struggled with the same question used car managers do: Which comes first?
We know Aristotle was considering the origin and order of the egg or the chicken, but if he were an ox-cart dealer, he might have even been pondering the order of provisioning for replacement inventory or selling the carts already in inventory more quickly.
For car dealers, choosing which activity gets priority in the used car department matters greatly. Our contention, based on data from more than 1,200 dealers, is that used car sales must take priority over provisioning for those cars’ replacements.
Your floorplan provider might not think consistently selling more inventory more rapidly is of higher importance than provisioning for replacement vehicles — after all, interest is interest. The truth, however, is that you do need to turn your inventory faster and sell cars for more profit to fuel a dynamic used car business.
A Matter of Differentiation
Don’t you want a competitive advantage in your market?
When you get the “sell or provision first” debate settled correctly, that’s exactly what you’ll gain, competitive differentiation. A sell-first strategy will drive a more significant and consistent competitive advantage for your dealerships than any other investment you can make to improve those outcomes.
So, the question becomes: How do you put a successful sales-first strategy in place?
The best dealers run tight ships. Their goal is to sell everything on their lots (and in their pipeline from acquisition to the front line) faster and more profitably while continually eliminating the weak sellers. This goal keeps their cash flow healthy.
But ask yourself: Are you investing as much time, resources and management into your time-to-line (T2L) processes — which take the vehicle from acquisition stage to sale-ready — as you do in provisioning your replacement inventory?
Why would you pay serious dollars to buy the best cars for your market and then not automate your T2L to get them sale-ready within three to five days of acquisition? With this type of program in place, the sales department knows with precision when cars will be available, and this is important. Automated T2L reporting and accountability give your salespeople insight about the cars in the pipeline so they can sell those units immediately — even while those vehicles are still working their way to the lot.
Automated T2L processes deliver more inventory turns because cars are available to retail more quickly — often with 16 to 18 days of their prime 21-day retail window still open to sell sooner and earn higher gross.
Talk about a competitive advantage for your used car operations. Automating your T2L will transform your used car department into the most competitive element of your store, both online and on your lot. Does your “do-it-yourself” T2L methodology generate an ROI better than $50 for every $1 you spend? A proper T2L system will.
Not a Tweak, a Transformation
So back to Aristotle’s question, which comes first?
Unless you run your reconditioning by the numbers — with a T2L philosophy — you will continue to lose marketing time, sales and gross margin on the cars you sell. Not only that, but you will not sell the volume of vehicles you could have otherwise.
Automated T2L is the secret sauce that makes this entire proposition so doable and so rewarding for the dealership that practices T2L.
With an automated T2L system, dealers get cars to the front line in three to five days, not the 12-to-21-day cycle we commonly see from non-T2L operations. By reducing recon cycle time even by 2.5 days, the used car department adds one additional turn to its inventory — providing more cars to sell within the same 12-month cycle.
Not only do recon operations get vehicles frontline ready faster, but T2L workflow software also gives used car managers and buyers essential details to help them buy more intelligently. By having decision-making T2L data accessible by smartphone, your associates can monitor the cars currently in recon and the recon costs per car. Now there’s no excuse for CYA recon-cost loading in appraisals. You’ll have accurate numbers and see what’s really going on in the recon process.
There’s a balance to be reached here — but if cars don’t move off the lot fast enough, vehicles being provisioned can create additional problems for the department.
Unsold cars mean floorplan interest continues to accumulate. Holding cost depreciation — each car’s share of general overhead — continues to pile up at the rate of $35 to $85 per day, depending on the brand, and as they age their value approaches zero — if you’re fortunate.
Our friends at Ricart Automotive often say a used car is a melting block of ice. If you want to create a competitive differentiation, you must get cars sale-ready faster so they can sell more quickly and at higher gross. No one wants a used car lot known for its puddles.
For a copy of RECON T2L — The Starting Line for Reversing Margin Compression, email me at the address above.
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