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As appearing in CBT News – January 2021

Whatever Your Used Car Volume, Claim the Advantage

By Sean Carlson

If you have $100 in bills in your wallet, does your money have more buying power than the $100 in your neighbor’s wallet?

The benefit you might possess over the neighbor is your budgeting and investment prowess. You know how to stretch and multiply that money, so your return on investment is more profitable; you know how to take a few seeds and plant them to harvest 30- or 60-fold. You’re a good shepherd of your assets.

Often, a dealer who views him- or herself as a good shepherd will, without even being conscious of it, over-protect their budget. This caution plays out in the slow adaption of competitive advantages peers are likely using against you.

Whatcha Gonna Do? Reconditioning practices and the technologies proven to eliminate waste, delay and cost from recon have been around for 10 years or more. Though thousands of dealers will testify to how these practices and tools help them achieve consistent time-to-line, speed-to-sale advantages, many dealers don’t believe the claims — or feel they don’t apply to their operation.

Here are a few words for that thinking: auto vending-machine competitors.

Operators like Carvana, Vroom, CarMax and the uber-large specialty used car dealerships are giant hammers in full swing, working diligently to wreck your used car business. These competitors are big, national marketing machines. They leverage inventory, modern reconditioning and workflow management technologies for high product visibility for their customers.

Whether you’re a single-rooftop rural dealership in Nebraska or a mega-dealership operation in New Jersey, you too will need to adapt and become adept at using modern, digital-based inventory, reconditioning and workflow management tools to remain a strong competitor in your market.

Your vehicles — and the customer experience you offer customers — must bring more value to the table at a more competitive price. Efficiency, collaboration and a speed-to-sale focus help you shepherd resources more prudently and profitably in this ever-competitive business.

Puts Your $100 to Work Dealerships reconditioning even 50 vehicles a month will gain radical benefits by making consistent improvements in how they process new inventory from auction and trade to their frontline. Even smaller-volume dealers who start using modern reconditioning practices will enjoy a return on investment of $15 for every $1 spent to become more efficient, sell more cars and improve per-vehicle retail profit.

You can calculate your efficiency and profitability gains discussed here with these two easy-to-use return on investment calculators.

We recently received these results from a southern U.S. independent used car dealer who used the calculator to determine its inventory turn efficiency, based on information the dealer plugged into the tool:

  • Monthly Inventory:
  • Monthly Vehicle Sales:
  • Average Gross Per Vehicle:
  • Time to Line Days:
  • Expected Time to Line Days:
  • Inventory Turn:
  • Time-to-Line Gain:
  • Additional Monthly Turns:
  • Added Yearly Selling Days:
  • Additional Monthly Gross:
900
325
$5,800
16
10
4.33
6
0.87
26
$136,663

Let’s Drill the Numbers, Reconditioning is either a cost or a profit center for your dealership. Reconditioning cycle speed, known as time to line, makes the difference. Time to line is linear clock time that starts when you write a check for a car at acquisition until it’s frontline ready.

Faster recon contributes to:

  • More profitable inventory turns. Each 2.5 days a dealership can reduce its time to line will add one additional inventory turn. The more turns, the fewer vehicles you need to stock, and yet sell more cars. For almost any dealership, this gain is possible almost immediately.
  • Cars getting sold sooner. Fresher cars command more looks and hold their asking price better. And, as online sales continue their popularity, increasing numbers of prospects will be asking about those vehicles you’ve just posted online while at the auction. When a lead surfaces for those cars, your sales staff can now have all essential and accurate information to present that vehicle confidently — without ever having to put the caller on hold to go find the answers they’re asking for.
  • Reduced holding cost margin erosion. Every car you buy has an overhead expense called holding cost — a $37 to $85 per car per day (based on make) depreciation charge against sale gross. Faster reconditioning helps to minimize this erosion.

A three-to-five-day recon time-to-line speed is almost impossible to achieve using traditional reconditioning vehicle and workload tracking systems. All this power control efficiency and data are at your fingertips, however, when you move to reconditioning workflow software. You really can't know how efficient your recon is without clock-like accountability and measurement.

One crucial cost these tools help you limit are your used car holding costs.

Let’s say that your holding cost is an average daily depreciation of $40 per car per day you own. A 10-day reconditioning time-to-line cycle of erodes sale gross by $400 for each used car in inventory. Now let’s say that your recon team can get that car sale-ready in half that time, in five days. The faster time-to-line gain means $200 more gross in that car.

If you recon 50 cars a month, that’s $10,000 a month more gross for the dealership. Faster reconditioning adds up to more efficient reconditioning and used car operations for your dealership.

Sean Carlson is the performance operations manager for Rapid Recon. Previously, he spent 13 years at one of the largest Toyota dealerships in the nation in various fixed operations capacities. He is an experienced continuous improvement advocate driving forward process efficiency and performance gain for dealerships of all sizes. You can contact him at sean@rapidrecon.com.

About Rapid Recon

Reconditioning workflow automation from Rapid Recon is the industry standard in time-to-line inventory turn and speed-to-sale vehicle revenue enhancement for automotive retailers. Benchmarking data based on 13 million vehicles processed uniquely positions Rapid Recon to advise dealers on how to improve their store’s profitability. Used by more than 2,000 dealerships, Rapid Recon ensures the accountability of processes, property, and people. Hence, dealers know answers quickly, find assets anywhere, and sell vehicles promptly to grow dealership profitability. www.rapidrecon.com CALL US: +650-999-0497