Why would anyone going to the bank and seeing small bills slip from their pocket not bother to pick them up? Crazy, right? Yet that’s what we do when failing to consider reconditioning’s value from acquisition to point of sale. These economic losses occur because of the siloed mentality that prevails within departments. We have ours; you have your own.
Unfortunately, a dealer who does not consider the full scope of reconditioning’s contribution to the business — counting only the time between the repair order and when the car goes into detail — is indeed letting money slip out of the business's pocket.
Now let’s say that person makes it to the bank with the small bills remaining in his or her possession and hands the teller a cash deposit containing a pile of bills in various numerations. Imagine the confusion on the part of the teller who is then asked to count and deposit only the hundred-dollar bills in the stack, saying the smaller amounts don’t add up to anything. Crazy again, right?
When reconditioning does not manage all phases of vehicle workflow from transportation to the sales desk, the dealer loses opportunity. Automated recon with tracking ability shows precisely where the shop is letting incremental profitability disappear.
Let me explain. When we talk with service directors about how they measure reconditioning, the standard answer we hear is that theirs takes three days per vehicle. This makes me chuckle because that’s a measurement of efficiency from when the service department opens the repair order to when the vehicle hits the detail department. That phase is quite limited, as there is considerably more dollar (time) savings that broader understanding of this tool can add to profitability.
That three-day measurement is undoubtedly someone’s recon time, but it’s far from “The” recon time. Let’s look at this workflow time as dollars, which it is. Settling for a recon time measured across the narrow repair-order-to-detail band is, let’s say, a $100 profitability deposit.
What if you measured recon’s cycle time-to-line speed across the full reconditioning continuum? You might notice where $50 in time dropped off over there, $20 here, and a fin out back. These are savings we can miss grabbing when we’re not measuring recon across its entire spectrum of responsibility.
You invested $47,000 in a used vehicle. That investment is tied up in transportation, staging, waiting, check-in, inspection, parts pricing, waiting, approval, waiting, restaging, parts hold, repair, testing, cosmetic estimate, waiting, approval, waiting, cosmetic repair, waiting, detail, waiting, photos, and front-line staging.
Two results typically happen when the recon process includes all these phases. You uncover bottlenecks and delays at each stage and can thus eliminate or minimize these slowdowns promptly. Consider how this workflow insight can identify where to help technicians gain up to 15 minutes per RO. That savings across your technician bays adds up to several hours of recovered time otherwise left on the sidewalk on your way to the bank.
By tracking transportation, could you discover which carriers are preferred for cost and timeliness? Might you learn that transportation must wait to unload because you’ve structured those times convenient for you but not your transporters?
Every minute your vehicles sit idle, you’re losing money and customers are losing the opportunity to turn those assets into retail sales.
Don’t discount the minor obstacles to efficient reconditioning just because they’re small. If you want to measure your recon times without a tool, you can quickly gauge your time by measuring the veins popping out of your used car manager's head.
Knowing where and even why dollars slip away unnoticed is why cycle time management is so essential to efficient and lean reconditioning:
Be alerted automatically to time delays in your reconditioning workflow.
Know your bottlenecks and other delays so you can eliminate them quickly.
Be able to associate time delays with economic gain (or loss) and have the information to know how to recover that gain.
Know where unapplied time lurks in the recon process – is this a workflow matter, production issue, or planning and staffing errors?
Consider an earlier statement we often hear — “Our recon is three days.” When a stopwatch measures this time, it’s frequently more than 72 hours. We’ve measured too many of these reconditioning practices to know that unless time is tracked by automation, most measured time-to-line efficiencies are four to five days. Is there a cost associated with having vehicles take another 48 hours to go through this RO to detail process? Yes, there is.
Reconditioning speed-to-sale, from onboarding into the recon process to delivery to the sales lot as a sale-ready vehicle, can often be completed in five to seven days. Again, without measuring this workflow and tracking processes using automation, this broadened workflow is often up to 12 days or more – and we have seen it up to 21 days (and not just with high-line imports).
Here's the math to consider despite the monthly volume of used car sales:
Holding Costs: Every vehicle in inventory accrues insurance, interest, property costs, and is more known as holding costs. In reconditioning, the holding costs add up when you write checks for a vehicle before you sell it. Today’s average holding costs are $60 to $80 per vehicle per day, and a 10-day time-to-line (from transportation to retail) is $600 to $800, right off the sale margin. A five-day recon reduces this cost by half. Multiply your holding costs across your typical used car inventory; the potential loss or gain is jaw-dropping. A three-day recon time to line is a good start, but much money is left in your overall workflow to make it worth looking at this more deeply.
Inventory Turn: Regardless of the market climate, you make more margin on a car when you can sell it quickly. The ingredients here are getting the vehicle reconditioned thoroughly and attractively faster so it is retail-ready faster. Fresh inventory gets everyone’s attention, from the sales team to customers. Even more productive for your bottom line is how fast reconditioning benefits turn. A 2.5-day savings off a typical time-to-line speed translates into one more monthly inventory turn. Now, you can sell more cars while you stock fewer of them.
Appraisal Efficiency: Today, recon influences trade appraisal as much as it does since it is based on how efficiently a dealer can deliver thorough, stand-up reconditioning. Dealers who bring appraisal processes into the reconditioning formula start their recon processes a day earlier, bringing those trade vehicles to retail-ready that much earlier. These dealers know the precise recon parts and labor costs per trade are around $700, although they range from $50 to $10,000. Front-end appraisal linked to historical reconditioning data for make, model, and year gives dealers this negotiation power. Avoiding recon costs that the proper OBD2 scan would have caught means even more potentially lost dollars will be captured and make it to the bank.
Dennis McGinn is the founder and Chief Executive Officer of Rapid Recon. www.rapidrecon.com
