I’m talking to the choir here, but auto dealers are champions of making lemonade from lemons — and you’ll need as much of this optimism as you can grasp going forward.
That reality aside, I want to talk about good news for changing times as they pertain to:
• Margin compression
• Inventory turn
• Staff turnover
This good news is wrapped up in the phrase “Time to Line” (T2L). It describes the speed at which you can get vehicles reconditioned to your standards at the best cost, measured from the time you acquire vehicles until you physically place them on the sales lot.
Getting your T2L under control is something that will help your profitability substantially. It is not disruptive. Its cost is a drop in the bucket compared to the immediate gains.
Sound too good to be true? Well, it’s not.
What’s Velocity Have to Do with It?
Managing a recon operation using a T2L strategy flows out of the industry’s now-long trend to leverage business and process data to improve bottom-line results. In other words, using the data a business generates through its various processes and systems and then leveraging that information to make better decisions.
T2L starts a stopwatch when you acquire used cars and it stops only when those same vehicles hit the retail sales lot. How you manage what happens in between is in your hands. A T2L strategy includes eliminating steps and processes that delay workflow and add no value to the end product. It also includes monitoring this workflow so everyone involved knows what’s next in the flow of things and who is responsible for handling next steps.
The idea is to get more cars through reconditioning in less time at lower cost.
This brings us to holding costs, or each vehicle’s share of the dealership’s overall expenses. NCM Associates says this is around $40 per car per day, from the time it’s acquired to when it’s retailed or wholesaled. A vehicle that takes 10 days from acquisition to the sales line incurs $400 in costs, which erodes its actual sales margin by as much. Managing T2L is about getting vehicles from acquisition to the sales line in the fewest days possible to minimize holding cost and put the freshest inventory on the line. Fresh inventory sells faster and most always with better margins than vehicles aged even a few days over 30.
T2L is about more than velocity though. It’s also about using reconditioning practices to structure recon workflow — meaning specific measurements, specific work steps and specific actions. This workflow is a roadmap that helps management track, monitor and improve recondition performance, from the individuals involved to how fast the department gets vehicles from acquisition to the front line at the lowest cost.
If you want a more competitive, profitable used car operation, two strategies are generally necessary: T2L and modern inventory management.
Everyone has seen or heard about Dale Pollak’s game-changing Velocity model. After his three books that help teach dealers how to increase inventory turn, he has just released his fourth, Like I See It. This effort exposes the current concerns about the state of retail automotive. Whether you are a vAuto, DealerSocket or FirstLook-MAXDigital user — or even doing your own version of a velocity strategy — your business depends on using the most current data daily for acquiring, pricing and merchandising inventory.
Of the 16,708 franchised dealers and many independents, it would appear that the majority are using one of these systems. Not everyone agrees with Dale’s approach, but his success speaks for itself.
Rapid Reconditioning Rationale
Dealers spend thousands of dollars a month for these technologies that can improve their inventory management. But, without T2L as part of modern inventory management, doesn’t it seem like a piece of the machinery is missing?
Of course it does.
Here’s why: For lack of a $500 per month investment in reconditioning T2L workflow software, a dealer gives up two inventory turns. That’s what the data tells us. Here’s the math, based on our experience helping thousands of dealers achieve T2L advantages: Every 2.5 days of reduction in T2L — shaving off two days through the workflow — produces another turn while eliminating time and cost inefficiencies for a store selling 100 used/month.
So, two turns on 100 cars x $1,500 average gross each is $300,000 per year or $25,000 per month for a T2L technology investment of $500 per month. The ROI on this is off the charts. Where else can you find a $50 return for every dollar spent?
Now for sure, your result will vary, but I have seen three turns added to 400 cars per month in used car operations. Even if you are selling 50 used per month and add just one turn, you would see a $15 return for each $1 spent.
Consider these reasons a GM should not put off measuring T2L:
• It results in accountability, so process transparency (who, what and when) is improved.
• When measured and managed using software, process efficiency increases radically; and as already noted, inventory turn increases while recon costs decrease.
• A dealer sells fresher inventory more profitably.
Furthermore, the same metrics that help drive a more streamlined and profitable T2L outcome help improve performance accountability among everyone involved. This helps management identify bottlenecks and improvement opportunities.
When staff works to clear goals and receives clear feedback, morale improves. A dealership having the right tools in the hands of motivated and better-equipped staff is always more competitive. Margin squeeze will likely continue, so strategies and tools like T2L and workflow automation help dealers squeeze more lemonade from lemons.