An auto dealership’s reconditioning function helps or hurts the used car department.
Recon is not just a process through which trade-ins and auction vehicles get new brakes and tires and dings repaired. Recon, at its best, is a cross-store profitability tool for auto dealer groups.
This cross-store tool gives corporate-level store managers in one report the level of reconditioning efficiency, time-to-line (T2L) speed, and other vital metrics for managing the individual store and group-wide recon profitability.
As the industry continues to consolidate and produce new competition like Carvana and Shift, it has become critically important from a used-car profitability perspective that groups manage individual store recon process performance, store-to-store, and at the group level.
The goal is to use this insight to mitigate risk and transform the profitably of all group used car departments’ profitability.
From helicopter to sidewalk level, group reporting provides oversight of such Key Performance Indicators as:
- Location of every car in the group’s possession
- Place and position of those cars within the recon process on their way to sale-ready status
- Number of vehicles having safety recalls and whether in recon or already on the lot
- Per vehicle parts and labor costs – and whether applied as internal or retail costs
- T2L run rate, from acquisition to sale-ready status
- Average recon cost per vehicle, by store and group
- Sublet status – vehicles released to sublets, status, due date
- Progress to T2L goal, with two to three days the target; Non-automated recon cycle rates quickly balloon to 10 to 21 days.
- Holding costs, in near-real time
- Total recon cost at current T2L and cost savings as T2L is improved
Attempts at tracking recon workflow and some of the above metrics using whiteboards, Google Docs or Sticky Notes has proven wasteful, positively not helpful for transforming recon into a profit center of the dealership and its group.
Many dealers instead have embrace reconditioning automation and its accurate and real-time recon management and accountability.
The point is money
David Simches is group used car director for Crown Automotive Group. He oversees Florida operations. He reported that by using recon automation and its group reporting tools, his stores’ T2L dropped from an average 12 days to a 4.6-day group average. Among other gains for the business, reducing T2L by nearly 7.5 days means his stores added at least one additional inventory turn a year.
He said the reports help him inform his GMs and corporate executives precisely how well their recon operations – and as a result, their used car departments – are performing.
“I try to make these group and store reports effective tools for change because GMs are good at making the numbers look good to corporate, but the group-level report tells them what’s happening and how fast stores within the group are moving inventory from acquisition to sale-ready. With that, our sales are up, our aging is down, and our wholesale ratios are in check – this is all good stuff that is supposed to happen when cars get sale-ready faster,” Simches said.
General managers, fixed ops directors, and used car managers tell me that lacking automation to account for recon-related events most T2L estimates are guesswork. They were speechless; they said when they realized that accurate T2L measurement showed their shops’ were taking from 10 to 21 days to get cars to the sales lot.
Dealers cannot operate a profitable used car department when inventory is already aging out before it hits the sales lot (or even online). When inefficient recon consumes 10 days of a premium 21-day margin window to get cars ready to sell, holding cost and market depreciation has burned up any potential profit left in those cars.
On the other hand, highly efficient recon operations will complete all recon steps within three to five days of their acquisition from trade or auction. A three-to-five-day T2L keeps cars’ premium retail window open longer. The margin on fresh cars is always stronger than on those for which repricing is needed every few days to get them sold.
In other words, how does a group, whether it comprises three stores or 300, manage its many recon operations so T2L is low in every store and thus inventory hits sale-ready status having cars still so fresh the sales team circles like sharks.
Years ago, Dennis McGinn was an entrepreneurial-minded and earnest young fellow working for Hewlett-Packard, part of a team learning and using quality disciplines known as Six Sigma and Continuous Process Improvement to build efficiency and accountability into enterprise resource systems for major automotive OEMs.
In 2010, he founded the reconditioning workflow software company Rapid Recon, for which he is chief executive officer. This software brings continuous process improvement disciplines to one of the most neglected and undervalued activities of the modern auto dealership.
“We know from our work with hundreds of dealer groups – from small group operators to the major public groups – who, having adopted group-level recon practices, report more profitable used-car departments,” McGinn said.
One example is Larry H. Miller Automotive. Rod Rowley is senior vice president responsible for nine franchise and five used car operations in Utah, plus group-wide used car operations. “Group reporting enables me to look at all my stores in one view, which makes it clear to us clear who needs help in their recon processes,” Rowley said.
These group-level metrics extracted recently from three dealer groups’ group-level reports (none from dealers interviewed for this article) show how a focus on cross-store recon can drive better results.
|Large Private Group||Public Group #1||Public Group #2|
|Used Car Sales/Month||600 units||600 units||2,500 units|
|T2L Reduction in days||2.38 days||3.15 days||4.85 days|
The annual savings for each group shown in this table originate from multiple gains:
- Overall savings in time, labor and materials accumulating from improved recon efficiencies the elimination of such T2L killers as lost, misplaced or neglected on dealership lots or at sublets.
- Faster T2L translating into reduced holding costs; NCM Associates calculates the average daily per vehicle holding cost at $40, which accrues from vehicle acquisition to its sale. For clarification, a 10-day recon cycle depreciates a car $400. The actual sale margin erodes by that much.
- Application of T2L automation, reducing the recon cycle; two additional turns on 100 cars at $1,500 gross equals $300,000 a year or $25,000 a month — a remarkable ROI for a monthly T2L workflow software cost of around $500 per store.
Anthony Martinez, Group Performance Manager for Rapid Recon, explained other considerations that more structured and monitored reconditioning resolves for groups.
“A few examples may include capacity issues in the recon center, inefficiencies dispatching cars to the right tech, delays working with outside vendors, difficulty in getting approvals or a slow down in getting cars into recon caused by delays in title or transportation, to name a few,” Martinez said.
Elaborating on the table data, Martinez said, “When this information is presented in a group report, managers easily spot trends. Cross-store reporting details help build peer recon center competitiveness. Discussions that evolve from the reported data often evolve into a rich conversation across the stores about best practices, lessons, and problem-solving.”
This friendly rivalry at Morrie’s Automotive Group has helped Jerry Heinecke, General Manager and former director, Used Car Operations, manage a more profitable three days’ average days in recon for the Group’s seven dealerships around metro Minneapolis, and in Chippewa Valley, Wisconsin.
“This group-level snapshot gives me the metrics to track, monitor, and manage essential benchmarks. Comparing one store’s performance to another is an excellent way to create a competitive environment,” Heinecke shared.
Jim Leman has been writing about automotive retail operations since 1992. Contact him at Jimleman@gmail.com