This article was originally posted in the September Issue of Car Biz Today Magazine.
New-car sales may have been down this year, six percent at the end of July, says Kelley Blue Book. This isn’t a drop off the cliff, but should signal to dealers to take a hard look at performance metrics. Why do this? First, because it’s in the numbers that business strength and weakness are found.
Owners and GMs know their new and used car numbers and recite them in their nightly sleep. Dreams might be a little more disturbed these days than when the SAAR was north of 17 million, but not knowing the numbers for the dealership’s recon function should cause nightmares.
When the going gets tough, the wise manager turns to the business’ performance metrics to navigate rough seas without taking on water or ending up on a reef.
Knowing how the recondition function is operating is a must these days. Even an average reconditioning performance leads to eroded gross, fewer fresh cars for sale, and cars that take longer than 30 days to retail. All these downsides cost the dealership opportunity and hence money.
Recon ripples through many departments:
- Hinders or improves retail service outcomes
- Determines the vehicles you should acquire for your lot (the order)
- Impacts what you can pay for trades or should pay at auction
- Either improves or erodes your competitiveness
- Improves or restricts sales opportunity
- Rolls more margin to the bottom line or wastes it
Without ready and real-time access to reconditioning metrics, even the most adept manager can lose the grip on recon’s multi-faceted, multi-step processes. Dealers able to drive gross to the bottom line in used cars know their metrics and use them to structure, track, account for, and report on each step a vehicle travels from acquisition to its placement on the sales line.
Key metrics to know about your reconditioning business:
- Time-to-Market (TTM), which is the total span of days from acquisition until the vehicle is retailed or wholesaled. Improving transit times, clearing titles more quickly, buying more vehicles in the service lane help reduce TTM.
- Average Days in Recon (ADR), a narrow strip of time within TTM, is a vital metric. The ADR clock starts when vehicles are logged into the recon software or system and continues until the vehicle hits the sales line. ADR measures this part of TTM that recon can control.
- Holding cost depreciation, a daily load per car you inventory, accumulates from acquisition to sale. NCM Associates estimates this at $36 per car/day for most non-luxury makes. Gets cars through recon faster and this erosion to gross is reduced; shave 2.5 days from ADR and inventory increases by one, which means you sell more cars a month without having to stock more cars to do that.
- Average time for the used car manager to approve or reject repair estimates
- Average service/repair cost per vehicle reconditioned
- Process and step completion times and efficiency of individuals responsible for them
Used car, fixed operations, and recon managers with easy access to these metrics can run a tight ship. Workflow software that provides individual and group dealership reporting provides the clarity into each step of the entire recon operation. Availability of such metrics should be critical intelligence for managers who want to remove waste from their processes and capture every opportunity to run leaner but more profitably.
A case in point is Morrie’s Automotive Group, seven dealerships around metro Minneapolis and Chippewa Valley, WI. It reconditions 1,800 vehicles a month. Jerry Heinecke, director of Used Car Operations, credits business metrics available to him through reconditioning software for managing recon to a three-day average cycle per car.
“Our average holding cost depreciation is about $30 to $40 per car per day, so when you can shave two to three days off ADR times 200 vehicles a month, I can make the argument that translates into real savings. Plus, we have the benefit of turning our inventory faster.” Heinecke said.
“I track aging and our selling timeframes from zero to 30 days and 31 to 60 days. I know cars that sell in that first bucket average upwards of $2,000 in margin, and just $300 to $500 if they fall into the second bucket. Three days saved in recon is part of this success. The beauty for me is I have the details to show managers the facts, regardless of what they believe or tell me about their reconditioning productivity. If you are going to prove something you have to be able to measure where you were and where you improved,” Heinecke said.
When the going gets tough, wise managers have the right metrics to shave costs, improve margins, and stop waste that drains vitality, efficiency, and the reasons for being in business.