Whether it operates three rooftops or 300, a dealership group is a unique animal. Each store within the group presents its own distinctive management and performance challenges as does the collective group itself. Managing for higher performance in crucial profit areas is always a challenge but technology providers, fortunately, now provide easy-to-use tools for variable and fixed operations to help them improve individual store and group performance.
However — and unfortunately for many group operators and their individual stores — the one influential department still operating across many groups’ stores not using advanced technology to improve outcomes is vehicle reconditioning.
That technology is, in fact, available.
Automated time-to-line (T2L) workflow software, happily, allows group operators and their individual stores get cars from acquisition to sales-ready status faster, reduces holding cost erosion, improves inventory turn and helps hold sale gross. Mobile access means these management and reporting requirements are available wherever those responsible are to ensure their critical used cars operation gets this vital job done efficiently and more profitably.
When one considers how affordable it is to bring measurable accountability, cost control and increased inventory turn to your used car operations within stores and across the group, disregarding this article might be a most costly decision. This is not an overstatement; we have the evidence to prove it. More than 100 groups across the U.S., Canada and Australia now use new T2L metrics to bring unparalleled recon performance accountability and cost control to the individual store level — and give group managers keen insight into each rooftop’s key recon metrics — to promote continuous recon performance improvement.
Key Metrics to Know
While GMs and their used car managers intuitively sense that their recon processes seem to take too long to get cars sale ready, 90 percent lack verifiable metrics and rely primarily on anecdotal-based guestimates.
You must understand and be able to implement basic metrics to get cars frontline ready in fewer days. Doing so increases inventory turn and reduces holding cost erosion of sales gross. Two new metrics to use are “Steps” and “Work Items”
Steps — Reconditioning workflow consists of steps your vehicle transitions through to reach front-line ready. These steps are customizable for each individual dealership operation. Steps might include “In-Transit,” “Service Evaluation,” “Recall Hold,” “Used Car Manager Approval,” “In Service,” “Service Sublet,” “Body Estimate,” “Body Repair,” “Cosmetic Detail,” “Photography” and “FrontLine Ready.” Steps can be broken down minutely if the dealer wishes; some recon operations will set up 30 or more steps. For example, some add a technician workload detail to the “Service Evaluation” step, which lets service management immediately identify how busy each tech is on a given day for dispatching.
Work Items — These are tasks or to-do items assigned to a vehicle and are independent of Steps. Typical work item tasks are “Pending Approval,” “Approved,” “Refused” and “Completed.” Some dealers will associate a dollar value per item, rolled up into a summary amount. Additional work items can include “Parts Price,” “Labor Time,” “Labor Amount” and “Total.”
Reconditioning structured by Steps and Work Items bring control and accountability to reconditioning, allowing relief for:
• Long recon cycles
• Mounting holding costs
• Diminished sale grosses
• Aging inventory
• Communication breakdowns and resulting frustration
Reduce Recon T2L
The ideal T2L per-store and group-wide is three to five days. Lacking accountability software to accurately measure T2L and show what needs to be fixed to streamline the process, a store lacking recon software will be taking 10 to 21 days to get cars from acquisition to sale-ready status. The economic drain of this delay shows up later in reduced used car gross, slow inventory turn and more.
Workflow software not only structures — via Steps and Work Items — the recon work to be done, by whom and by when, but it also identifies workflow delays and bottlenecks. It keeps sublet work on your schedule, reminds you where vehicles are parked waiting for parts or otherwise taken out the sequence in the recon flow, and speeds up approvals and other communications that otherwise add to delay and cost.
GMs and used car managers running recon by T2L best practices stand confidently at their 20 Groups and answer boldly when conversations turn to recon measurements and costs.
Holding Cost and Gross
NADA data notes that the U.S. auto retail landscape comprises 16,812 total dealership rooftops owned by 7,751 individual owners. Data from Statista.com tells us the top 11 groups represent 1,389 dealerships, with the top two — Penske Automotive Group and AutoNation — owning more than 550 rooftops, combined.
The average used car volume in 2017 was 359 units per new car dealership. With 294 rooftops, Penske is processing, on average, 105,546 used cars a year through its reconditioning departments. Serra Automotive, with 55 stores, is handling 19,745 cars, while a group of five stores will need to acquire 2,000 replacement units a year to sell 359 vehicles.
Groups practicing T2L best practices get cars reconditioned faster and, as they do, flow incremental profit throughout the dealership, from better grosses to deeper F&I product penetration per transaction.
Using NCM Associates’ average daily holding cost of $40, a car taking 10 days to get retail ready will accumulate a $400 overhead burden. With a sale gross of $2,000 and subtracting the holding cost depreciation, the real gross is $1,600.
Theoretically, for Sonic Automotive’s 112 stores, based on Statista’s data, and a volume of 40,200 vehicles (using NADA used car sales average per dealership data), a 10-day holding cost equals a reduction in gross of more than $16 million.
However, using automated workflow metrics to reduce T2L even one day changes the outcome of this math dramatically.
Let’s assume a store of Sonic’s size, implementing T2L metrics to reduce groupwide T2L by one day, brings its T2L down to nine days. The new holding cost per day per car is now $360 (nine days X $40). This oneday-faster T2L creates a difference between an $80.4 million gross ($360 holding cost) and $65.9 million ($400 holding cost). That amounts to savings of $18.5 million.
This math works the same, regardless of the number of vehicles you recondition a year. As you reduce T2L, repeat this formula to determine gross savings. On average, stores implementing T2L metrics drop by up to 10 to 15 days. The best practice goal is three to five days, though each store will determine which T2L best fits its individual goals.
Increase Inventory Turn
Every 2.5 days eliminated from T2L equates to one additional turn of inventory. This is a significant sales profit gain that now flows to the bottom line through the application of continuous process improvement science to vehicle reconditioning.
With Steps and Work items defined and assigned in the workflow software, everyone knows the flow of work and who is responsible for that work — and the time allotted to complete those items. By appending notes in the software within these metrics, techs, detailers, managers and others approved have immediate anywhere access to detail-rich notations and questions. When everyone involved has his or her clear assignments and communication is instantaneous via desktop, mobile, text, email or phone, the communication loop is fast and complete. This reduces — if not eliminates — finger pointing and blame.
Check the Value Proposition
Per store, workflow accountability software should cost no more than does a set of “Better” grade tires at retail. When you consider just how affordable it is to bring measurable accountability, cost control and more inventory turn to your used car operations, getting onboard with evolving metrics to improve your recon T2L is like money waiting to be found.