By Dennis McGinn, Founder, CEO Rapid Recon – It’s 2035, and political saber rattling continues. States still battle over education funding. Jeopardy is in its 71st year. At the most recent NADA convention, dealers, vendors and pundits had to admit the mobility, ride-share and subscriber transportation models are here to stay — and many congratulated themselves that they’d read the tea leaves right all those years ago.
In 2035, dealerships still retail new and used vehicles as they have since 2018, online and in-store. Subscription-use cars, electric vehicle (EV) pods, autonomous vehicles and ride-share units are returning to dealerships for reconditioning and resale in record numbers.
In 2035, the new-car seasonally adjusted annual rate (SAAR) is 25 million units, a blend of traditional and evolving powertrains, body styles and transportation purposes.
Bob Lutz’ prediction proves wrong — dealers still have a dog in this race and the legs to keep going.
In 2035, however, some dealers are happier than are others.
Positioning for Future Success
The happier dealers noticed which way the wind was blowing years before. Prophetically (or prudently — or both) they went about removing waste and cost from their business models. One of the most productive cost-reducers was transforming used car reconditioning into a high-volume, low-cost assembly line run both by the clock and by accountability. Some dealers who did this pull a quarter-million dollars or more a year from the effort.
In this current time of retail restlessness, dealers who don’t respond well will find the future more painful than it needs to be. Today is the time to get your arms around the measurement and management of vehicle reconditioning time to line (T2L).
As dealers improve their T2L to get cars from acquisition to the frontline faster, holding costs and other vehicle depreciation erosion are reduced and, as a result, cars sell faster so margins increase and used car profitability improves. By bringing continuous process improvement disciplines to reconditioning, including measurement and accountability, the industry wins.
If we can cut by half the time to recon the 38 million used cars sold in the U.S. each year, the savings would be staggering. Using NCM Associate’s daily per car holding cost average of $40, a realistic five-day T2L improvement in recon time would generate $30 billion a year in recovered time, labor and dollar waste for the industry!
At the store level, this number is around $1 million a year. Is this worth your time? How many more cars would you have to sell to make $1 million in gross — or how much expense would you need to cut to achieve the same amount?
More answers to these challenges are outlined in my new book, RECON T2L – The Starting Line for Reversing Margin Compression. Click here (http://rapidrecon.com/) if you would like your copy.
McKinsey & Company says in “Automotive Revolution — Perspective Towards 2030”:
· Despite a shift towards shared mobility, vehicle unit sales will continue to grow, but the annual growth rate is expected to drop from the 3.6 percent of the last five years to around 2 percent annually by 2030.
· This drop will be driven mainly by macroeconomic factors and the rise of new mobility services such as car sharing and e-hailing (Uber, Lyft and others).
· Changes in mobility behavior will lead to one out of 10 cars sold in 2030 potentially being shared vehicles and fit-for-purpose mobility solutions.
Cox Automotive projects 39.5 million in used-car retail sales for 2018. Each of these vehicles will require reconditioning. NADA forecasts 2018 new-car sales of 16.7 million. Given these figures, dealers will be selling, servicing and reconditioning traditional vehicles for years yet to come — and ride-share, subscription and other modalities will need to be serviced and detailed before they can be sold again through dealerships.
All this is to say that while the industry wrestles with new delivery systems — how to further improve customer experience and make the buying process more transparent and streamlined to add value — vehicle reconditioning will be mostly unfazed by other industry changes.
Digital Technology Reduces Holding Cost
Given a daily holding cost per vehicle of $20 to $40 or more depending on make and model, slow reconditioning costs your dealership dearly. Every car you purchase as trade, privately or at auction has this cost associated with it, which is each vehicle’s share of dealership overhead. Holding cost trends higher for dealerships with expensive facilities and higher overhead, but even at $20 per car per day — and traditional recon processes that take 14 days to get cars to the lot — add $280 to that car’s cost.
When the car sells, its actual gross will be sale gross minus its holding cost. Multiply this erosion times your volume and you’ll see why slow and inefficient reconditioning is a management problem to fix now.
The multiplication of this becomes mindboggling as we look at the amount of lease units heading into the used car market. According to reports, 3.6 million units were off-lease returns in 2017, with 2018 performances to be 7.4 percent higher — which amounts to 3.9 million.
The dealers ready to take advantage of subscription services and other alternative transportation models are now leveraging end-to-end digital retail concepts and practices and earning more business, whatever the form of vehicles they sell and recondition. Throughout the continuous improvement dealership, digital applications are improving results.
Digital technology, for instance, enables retailers to lessen the need for human talent. They’re lowering operating costs and addressing the industry’s miserable 40 percent sales turnover rate. As used car operators like Carvana teach us, digital also means the need and cost for fewer hard assets to sell cars. Similarly, digital reconditioning also drives waste, cost and delay out of the multiple processes and steps required to recondition used vehicles.
Yes, the disruptors and disruptive transportation models are upon us. While we will see these new models flow into the retail car business, your job is to embrace change and recon well in this era of retail restlessness. Continue your focus on removing waste from your business and continually improving processes. As you’re doing so, continue to focus on the top four steps to a prosperous future selling cars: (1) Sell cars; (2) Make a fair profit; (3) Keep CSI high; and, (4) Know your reconditioning T2L.