Dealers have been asking recently about factory certified pre-owned (CPO) programs. The questions flow in part from recent efforts by factories to step up their CPO sales volumes.
The questions essentially boil down to two queries—Are factory CPO programs really worth the price of entry? And, if CPO programs do make sense, how can I consistently make money selling CPO vehicles?
Before addressing the questions, I should note that I’m an advocate of factory CPO programs. To be sure, some are more dealer-favorable and –friendly than others.
But, generally speaking, CPO programs offer value to dealers: They help dealers retail off-lease vehicles, attract new buyers, develop brand/dealership loyalty and pick up future work in their service departments.
Most dealers recognize the benefits CPO programs can bring to their used vehicle operations. The questions really speak to the mechanics of running a CPO program that will maximize profitability and return on investment (ROI) for every vehicle that carries the CPO designation.
On the cost of entry question: Clearly, a factory CPO badge adds costs to a qualified vehicle that can put pressure on the vehicle’s profit potential. On top of that, a CPO-worthy vehicle will typically cost more to acquire and, depending on condition, will require higher reconditioning costs.
The key question for dealers, then, is whether the market (as measured by a vehicle’s Cost to Market and Price to Market ratios) will allow dealers to ask more money for CPO units to achieve the desired profit and ROI objectives. A quick look at recent market data suggests this is currently the case:
- CNW Marketing Research notes that CPO sales helped drive a 6.1 percent increase in the value of used vehicles retailed by franchised dealers in February;
- CPO sales were up 12.3 percent January and February of this year, according to a report from Manheim chief economist Thomas Webb;
- Used vehicle “profits are on the rise, as throughput per store is higher and margins are stabilizing,” Webb adds.
The second question from dealers—how to consistently make money selling CPO cars?—is a little more tricky to answer. That’s because CPO units represent a higher investment risk for dealers. As I answer this question, I share three characteristics common among successful CPO dealers, irrespective of their franchise brand:
- A committed, market-measured approach. “We work the program. If we can certify a car, we’ll do it,” says a Midwest Chrysler-Dodge-Jeep dealer, whose CPO sales now account for about 50 percent of his retail volume. “But the decision isn’t automatic. We need a reasonable level of certainty that the market will support our investment to make it a CPO unit.” Put another way, every CPO-worthy vehicle requires its own market assessment to inform whether the CPO investment is worth it. If this dealer decides to certify a vehicle, this market assessment travels with the car to the sales desk, where associates use it to validate why the vehicle is worth every penny of its asking price.
- A wholistic view of every CPO deal. The Chrysler dealer and other successful CPO dealers don’t sweat the occasional “short” deal that’s sometimes necessary to retail a CPO unit. Instead, they view the transaction as the culmination of a series of money-making opportunities in service, parts, F&I and, if the unit was a trade-in, the new vehicle department. Likewise, if the deal brings in a trade, it sets off a new profit-making lifecycle for a fresh car. This wholistic view helps dealers recognize that retailing CPO units, just like other used vehicles, is a carefully managed mix of wins, losses and draws that collectively benefit the bottom line of every dealership department.
- A 45-day-or-less retail window. Every CPO vehicle should be special, but not that special. Successful CPO dealers treat CPO vehicles like every other used car—each unit must sell within 45 days or less to maximize profitability and minimize risk. This can be a difficult timeline for some dealers to accept, especially since they paid good money to put the CPO badge on the car in the first place. But today’s market takes no prisoners when it comes to time in inventory, and any car, CPO or not, that hasn’t retailed in 45 days reflects a management failure.
As I noted above, some factory CPO programs are better than others for dealers. But I haven’t seen a factory program yet that’s picture-perfect, and the OEM efforts to enhance and protect their brands in the used vehicle arena seem an appropriate way to help their dealers differentiate from the competition and invest in tomorrow’s new car customers.
Dale Pollak is the founder of vAuto. This entry and Pollak’s entire blog can be found at www.dalepollak.com
Paul Potratz of Potratz Partners Advertising begins this week’s “Think Tank Tuesday” video with a controversial question: “Is your business an e-commerce business or brick-and-mortar?”
Interestingly, the answer doesn’t really matter, he said.
Potratz says whether you have a physical location or not, you have to be an e-commerce business, as well.
And that starts with ensuring your engaging potential customers online.
In this week’s video, Potratz shares a few techniques to ensure a dealership’s website is engaging and gives shoppers enough information to justify a purchase.
Potratz explains that your website must tell potential buyers who you are and why they should buy from you, as well as give information on why the shopper would benefit from buying from your dealership.
Potratz also touches on a fairly new term in the advertising world which can help dealers engage more shoppers: marketing automation.
Marketing automation is a tool which allows you to track the “digital body language” or potential shoppers and gauge whether they are a serious potentialy buyer.
Then, marketing automation can send automated emails to these shoppers, potentially turning “marketing qualified leads into sales qualified leads.”
For more on this new tool and how to better engage shoppers online, see the latest “Think Tank Tuesday” video here.
Are you putting all your eggs in one basket?
In his latest “Think Tank Tuesday” video report, Potratz Advertising chief operating officer Paul Portratz stresses to dealers the importance of having multiple streams of income.
Potratz says this is “one of the biggest financial lessons one can learn.”
“If you work for a company, chances are you are dependent on that income from one company; but if you are a business owner, have you developed multiple streams of income?,” he asks.
Car dealerships have the potential for several income streams, but dealers have to capitalize on them, he said.
Besides the obvious — new and used cars — Potratz contends dealers should focus on the service and parts department, as well, and asks dealers what steps they are taking to promote these departments and increase revenue opportunities.
The service department has become increasingly important as of late due to the fact that the average age of vehicle on the road in the U.S. is 11 years, and is still on the way up.
“This (service and parts income) is the low hanging fruit,” says Potratz.
And of course, many service customers will often buy with that very same dealer, leading to yet more income and perhaps a trade-in.
Bottom line?
Creating multiple streams of income acts as safety net when the economy ebbs and flows and when vehicle sales are slow.
To view the Potratz’ latest “Think Tank Tuesday” video, click here.
At a recent dealer group presentation, a used-vehicle manager asked me an astute question:
“Dale, how can you tell when a used vehicle may need a price change?”
I liked the question because it suggested the manager was a thoughtful and proactive person — someone who doesn’t follow the more traditional set-it-and-forget-it practice for used-vehicle pricing.
In answering the question, I shared the following three indicators that, when used together, give dealers the best guidance to make used-vehicle pricing decisions and retail every used vehicle for maximum profitability in the shortest amount of time:
1. Vehicle Details Page (VDP) performance: By now, most dealers and used-vehicle managers can accurately define a VDP as the “look” a vehicle gets when a potential buyer clicks on an inventory listing to learn more about a specific car. Too few dealers, however, recognize the VDP as the “money metric” — the more VDPs a car gets, the better its chances to sell quickly and deliver the highest level of profitability.
If we assume a used vehicle is “right” for a dealer’s market, and it’s merchandised correctly and fully online, the vehicle’s daily VDP tally is an important indicator whether its price is resonating with potential buyers and the broader market. Some dealers carefully monitor a vehicle’s VDP counts and trendlines to help them determine if a price change is warranted.
If the VDP views meet the minimum daily targets they expect to see, they may leave the price as-is; if the VDP exceed the targets, and they appear to be increasing, the dealers may adjust the price to reflect increased demand.
Both of these decisions, however, are contingent on a vehicle’s time in inventory.
2. Price To Market: This metric measures each vehicle’s price against identical, competing vehicles and their prices in a dealer’s market. Some dealers consider this their primary data point to craft their used-vehicle pricing strategies and make subsequent pricing decisions on individual cars.
For example, it’s not uncommon for dealers to set Price to Market parameters for inventory age “buckets” (98 percent to 100 percent, 0-7 days; 94-97 percent, 7-15 days; 90-93 percent, 15-22 days; < 90 percent, 22-29 days). This approach recognizes two important fundamentals — fresh cars deliver the best gross profits, and time is often a used-vehicle retailer’s worst enemy.
Dealers who use such Price to Market parameters fine-tune prices for individual cars within the individual “bucket” ranges. The key to success here, of course, is the degree of diligence a dealer or used vehicle manager applies to executing the Price To Market-guided strategy. Those who only price and re-price vehicles as they enter/leave an inventory age segment will inevitably leave gross profit on the table as vehicles don’t sell as quickly as they could. The most proficient dealers review used vehicle prices on a near-daily basis to keep pace with the current market.
3. Market Days Supply: This metric, which measures the sales rate and supply of identical used vehicles in a specific market, is most beneficial to dealers as they make the decision to acquire a vehicle. In an instant, the Market Days Supply tells them how much competition a specific used vehicle will face in their market.
The Market Days Supply also informs pricing decisions once dealers have acquired a vehicle. For example, vehicles with a high Market Days Supply (e.g., a greater level of competition) may see price adjustments that reflect the lower rungs of the inventory age “buckets” noted above. By definition, these vehicles aren’t as appealing and unique, hence the more aggressive pricing position.
Conversely, vehicles with a low Market Days Supply often deserve a higher Price to Market position. These are the in-demand cars that warrant more wishful asking prices.
I closed the pricing discussion by reiterating that these indicators work best when you’ve got the “right” cars for your market and they’re merchandised online correctly.
I also noted that when dealers have the “right” cars, and they diligently use these indicators to make used-vehicle pricing decisions, good things start happening.
First, your used vehicles start to sell more quickly and, typically, generate better front-end gross profits. The market-based pricing strategy begins to fulfill its goals of retailing every used vehicle for maximum profitability in the least amount of time.
Second, you now have a market-based rationale to justify your asking prices with customers. In many cases, you’re “on the money” pricing means your sales team doesn’t have to justify anything — the buyer landed on your car because you priced it right.
And last, you’ve got a market-informed, scalable approach to pricing that can drive a “turn and earn” used vehicle inventory management strategy that drives improved performance and profitability in every dealership department.
Dale Pollak is the founder of vAuto. This entry and Pollak’s entire blog can be found at www.dalepollak.com
Are you missing leads? Is your sales funnel falling short? Paul Potratz, chief operating officer of Potratz Automotive Advertising, calls this “leakage.”
In his latest “Think Tank Tuesday” video, Potratz explains just how much of an impact leakage, or lost leads, can have on your business, and how to minimize this issue.
“Leakage in your sales organization and sales process can be very disturbing – it can cost you money, a lot of money, and it means missing out on opportunities,” said Portratz.
Where is the leakage in your sales organization?
Potratz explained every day you have opportunities and leads coming into the dealership that your sales team has to handle.
“Say you have 1,000 leads, what is the next step? You pick up the phone and you call them, or you send them an email – how many are we establishing contact with? Let’s assume you establish contact with 500, or 50 percent, but the other 50 percent of them is leakage. Howdo you increase process and cut down on leakage?” Potratz asked.
Potratz says the answer is simple.
“Make sure your team has the resources, confidence, knowledge, tools, and ability to minimize the leakage. Set your goals, and work towards them. Don’t be afraid to readjust,” he shared.
To view the latest “Think Tank Tuesday” video, click here.
A few months ago, I finished the biography of Abraham Lincoln, “Team of Rivals,” that inspired the award-winning movie, “Lincoln.”
The book struck me as more than just a masterfully written look back at one of our nation’s best presidents. In fact, I found “Team of Rivals” offered multiple lessons in leadership, revealed as Lincoln addressed ever-thornier challenges during his ascendancy to the presidency and the darkest hours of the Civil War.
One of Lincoln’s greatest challenges came from an assortment of generals who, in the heat of battle and beyond, proved to be ineffectual leaders. Their missteps and mistakes caused repeated setbacks for Lincoln’s goal of ending the Civil War and uniting the nation.
I thought of Lincoln’s struggles with top generals after talking with several dealers at the recent National Automobile Dealers Association (NADA) event about their current difficulties in used vehicles.
The dealers are in varying stages of implementing what I call the Velocity strategy for used vehicles — where market data and return on investment (ROI) are the chief guides for inventory management, pricing and merchandising decisions to maximize turn and profitability.
The dealers offered a variety of pain points — prices too high for the market, an inability to recondition cars quickly, persistent inventory age issues, too many appraisals that “bury” the car, too much discounting with customers, sloppy merchandising, difficulty finding the “right” inventory and others.
I asked these dealers what they would consider the No. 1 reason their dealerships weren’t able to work through these problems. The most common response: A lack of “buy-in” from key managers at the dealership, including the general manager or GM.
“I’m definitely losing my patience,” one dealer told me. “The reasons I get from GM sound an awful lot like excuses.”
That’s when Lincoln and “Team of Rivals” came to mind. The book notes that Lincoln sometimes faced direct resistance, if not insubordination, from top generals. It also highlights how Lincoln remained loyal toward these generals, even as they disappointed him with their performance.
I started wondering about the parallels between Lincoln’s generals and dealership managers charged with reinventing their used vehicle operations. To be sure, the challenges are different, but there are key similarities:
First, the terms of engagement are different. Today’s used-vehicle buyers shop online and largely find the car they want before they get to the dealership. This shift has significant implications for the way dealers acquire, price, recondition and retail their used vehicle inventories. Yet, many dealership GMs and managers stick to what they know, which sinks their chances for the outcome their dealer expects.
Lincoln’s generals faced a similar challenge: Their conventional rank-and-file style of engagement was often ineffective against the guerilla and trench warfare tactics their Confederate counterparts employed.
Second, the little things matter a lot more than they used to. I often say, “there’s a thousand things a dealer has to get right on every used vehicle” to expect a profitable outcome. That’s not much of an overstatement considering the importance of getting the “right” car, reconditioning it, and then putting it online with quality photos, compelling descriptions and market-guided pricing. In this environment, it’s easy for dealership GMs and managers to get distracted, and focus on the wrong things, or lose their focus on the “turn and earn” strategy entirely.
For his part, Lincoln fretted on more than one occasion that a particular general lost sight of broader campaign strategy in the heat of battle, leaving an opportunity untaken or another Union force vulnerable.
Finally, the most-successful dealerships achieve higher levels of profitability and success only after they tear down silos, get all departments to work together and align every objective to maximizing the “total gross” of the dealership. In my latest book, “Velocity Overdrive: The Road to Reinvention,” I describe how the used-vehicle department functions as the hub of a “wheel of fortune” that can lift sales and profitability across the entire dealership. It is difficult for some GMs and managers to shed their backgrounds and biases toward a particular department and embrace this “total gross” management mindset.
Lincoln also struggled to achieve harmony among his generals. Eventually, though, he appointed Gen. Ulysses S. Grant to command all Union forces. Together with other generals, Lincoln and Grant aligned Union forces under a strategy that simultaneously engaged Confederate troops and cut off their supplies. The strategy ultimately resulted in Confederate General Robert E. Lee surrendering to Grant at Appomattox Court House.
I liked how one dealer at NADA digested the comparisons I made between Lincoln’s struggles with his generals and the difficulties dealers encounter as they transform their used-vehicle operations: “I need to be more like Lincoln, and my GM needs to be more like General Grant.”
“Bingo,” I said.
I had the honor of taking part in a program for Cars, Trucks and Bucks, an online talk radio show hosted by former Chicago Tribune automotive writer Rick Popely, who also writes for Cars.com and other auto-related outlets.
The show’s featured guest was dealer Larry Mullinax, of Mullinax Ford, New Smyrna Beach, Fla. Larry is the son of Ed Mullinax, the dealer credited with first offering a “no haggle, one-price” experience for customers at his Ohio dealership in 1975.
I listened in to Mullinax’s segment and liked the way he answered several of Popely’s questions:
Question: Why does one-price work for you when it doesn’t work for others?
Answer: “It’s a commitment by management to stay with it,” Mullinax says. The commitment extends to the sales desk, where associates and managers must be firm with the “30 percent to 35 percent” of customers who want to “be horse traders” and negotiate for their vehicles. “We’re trying to sell to the masses. We’re going for the 65 percent to 70 percent of the people who like doing it this way.”
Question: Are your prices the lowest?
Answer: “That’s hard to say. We put a very aggressive price out there,” Mullinax says. “We really can’t afford to be high-priced on these vehicles. Are we the very lowest price? I don’t know, but it’s a fair price, it’s a discounted price with all the incentives and it’s a great experience for the customer.”
Question: Is there one price on a trade-in value?
Answer: “You’re buying our car, and we try to give you our best price up front,” Mullinax says. “You’re selling us your car and we’re going to try and give you the best price for it up front. I’m not saying we never move on that price. We’ll move $200 to $500 if that’s what it takes to make a deal.”
Question: What do customers say they like about doing business at Mullinax Ford?
Answer: “They really like having the sales person handle them from start to finish,” Mullinax says. “Our customer surveys are typically higher than group average because they like the process.”
Question: What things are important to customers? Transparency? Time? A simple straightforward process?
Answer: “Time is a factor, but the big factor is that people don’t want to pay too much,” Mullinax says. “Hence, you have people who want to find out dealer invoices, and they look at TrueCar and other services to tell you how much to pay for a car. We’re the same way. We try to get to the bottom line right away. The price you see in the window includes all dealer discounts and incentives. If you think about the way we sell cars, it’s really the same way that you buy everything else in your life.”
Question: Is the industry headed to one price?
Dale Pollak is the founder of vAuto. This entry and Pollak’s entire blog can be found at www.dalepollak.com
For many, a car purchase is one of the biggest investments they will make in their lifetime, and with that kind of spending, shoppers need a good reason to buy.
Potratz, of Potratz Partners Advertising, explained in his latest “Think Tank Tuesday” video report that what customers are looking for from a dealership website is “justification.”
“Let’s assume for a moment that you are shopping for something. When you are shopping, what are you really doing? Could it be looking for justification?” asked Potratz.
Potratz also asked viewers, “If you went into your website, is there anything on there that could justify a purchase?”
He explained one good way to show a potential buyer why a purchase may be worth his or her time and money are product reviews.
Not reviews from your dealership, but product reviews, similar to what shows up on sites such as Amazon and Zappos.
Potratz calls these justification “triggers”.
“The customer behavior and the psychology of an individual is the most important thing you can address. It’s about understanding why people do what they do and understanding that message,” said Potratz.
See the latest "Think Tank Tuesday" video report here.
I’ve long advocated that dealers need to recognize the primacy of the used-vehicle department as an engine of growth for sales volumes and profitability across the entire dealership.
As a dealer friend puts it, “the used-vehicle department is the only department that touches every part of the dealership. Once we understood this, it changed our business. When you recondition 145 vehicles a month versus 40, the impact in service and parts is unbelievable. Then, you’re selling more in F&I and you’re improving your throughput in new vehicles because you can pay more for trades.”
But some dealers have difficulty making used vehicles a primary focus, much less making the department drive the “wheel of fortune” for the entire dealership.
I’ve come to recognize that this difficulty is more pronounced for dealers who adhere to two traditional dealership management practices:
1. Every dealership department’s performance must stand on its own.
On the surface, this management practice makes sense from a financial perspective. Dealers are in business to make money and each department, like an oar in the water, should advance a dealer’s desire to run a profitable business. The problem, however, is that this management practice, and the pay plans that often accompany it, tends to create “silos” where managers are focused on the results in their specific departments with little regard for helping their peers in other departments.
In used vehicles, the “silo mentality” often contributes to difficulties to make used-vehicle reconditioning a priority in service. I recently spoke with a dealer who was frustrated by an inability to increase used-vehicle sales volumes and profitability—an impossible goal, he realized, after determining it took 16 days, on average, for “fresh” used vehicles to get reconditioned and ready for the front line.
2. A loss on a used vehicle should be avoided at all costs.
Like successful coaches in sports, dealers are blessed with a keen competitive spirit and a strong, if not burning, desire to win. For dealers, the desire to win takes on even greater significance, given they often have their personal and family fortunes on the line.
But here’s where good coaches and dealers often differ: Most coaches recognize that an occasional loss is part and parcel of the job. It’s rare for any coach or team to go undefeated in a season, and when this occurs it’s largely regarded as a temporary blend of just-right circumstances — not an ongoing operational standard.
Many dealers, however, apply a more stringent, zero-tolerance attitude toward losses in used vehicles. It’s like they expect to win 100 percent of the time. As they strive to reach this nearly impossible standard, dealers will often create most costly problems, such as aged cars and missed opportunities to reinvest their money in vehicles that will sell faster and offer better profit potential.
To be clear, I’m not suggesting that dealers toss these traditional management practices completely out the window. Rather, I’m advocating that dealers adopt a more nuanced approach on both fronts to give their used vehicle operations a better opportunity to “lift all the boats” in the dealership.
Here are three recommendations I suggest to help dealers achieve a greater degree of used-vehicle primacy and performance at their dealerships:
1. Adopt a “total gross” management mindset.
This mindset effectively does two things: First, it helps managers and employees understand how their individual contributions benefit others in the dealership — which leads to a greater degree of collaboration and cooperation. Second, a “total gross” mindset frees dealers and managers from focusing solely on preserving (or propping up) their front-end gross profit average, a factor that feeds the desire to avoid a loss at all costs. Note: It may be necessary to adjust pay plans to reflect the new emphasis on “total gross.”
2. Accept the occasional retail loss as a lesson.
Often, a dealer’s desire to avoid a loss on a used vehicle hinders their ability to recognize what is most likely a mistake — either the wrong car, the wrong pricing strategy, or inattention to indicators the unit’s headed in the wrong direction. Dealers who heed the lessons in each loss inevitably see them less often, and maximize the turn and earn potential of their investment in each vehicle.
3. Inspect what you expect.
Dealers can’t simply will managers of different departments to collaborate, or get used-vehicle managers to automatically focus on the day-to-day tasks that minimize potential losses before they occur. As Velocity dealers attest, it takes a greater degree of discipline and oversight to make used vehicles a priority across the entire dealership. The good news, however, is that once the “wheel of fortune” starts turning in a dealership, it gains momentum and spawns the motivation that keeps dealers and managers focused on the primacy of used vehicles for the long haul.
Dale Pollak is the founder of vAuto. This entry and Pollak’s entire blog can be found at www.dalepollak.com
I like the way the general manager of a Chevrolet dealership in upstate New York thinks about used-vehicle reconditioning.
“It’s just as important in terms of gross profit as working the deal in the front of the store,” the GM says. “I know that may sound crazy but I really believe it. The faster you can get those cars to the front line with the right amount of reconditioning, the more actual time you’ve got to make the biggest gross you can make.”
This emphasis on the importance of reconditioning vehicles “right” has led the GM to audit and re-examine the reconditioning processes at his dealership. This examination came even though the GM and his team were anything but slouches when it comes to reconditioning and retailing used cars.
In the past year, they’ve successfully trimmed the recon-to-front-line times to an average of three days, while doubling the dealership’s monthly used vehicle sales volumes to 130 units a month.
Still, the GM believes “there’s more gross to be made” if he and his team can make used-vehicle reconditioning even more cost-effective and efficient. The following are 7 Rules For Used-Vehicle Reconditioning that the GM and his team developed after a top-to-bottom review of what’s working and isn’t.
Rule 1: Make speed and quality your chief strategic objectives.
For the GM, these dual objectives provide the basis for evaluating every aspect of his reconditioning processes and decision-making. “You ask yourself, ‘does X meet our objectives?’ If it doesn’t, you know you need to make an adjustment,” he says.
Rule 2: Show how individuals contribute to your key objectives.
The dealership has a dedicated reconditioning team that includes a writer, technicians, detailers and photographers. Team members excelled at their respective tasks, but the group lacked a broader understanding of how their work affects the outcome on every car.
“I broke it down and showed them what it costs us in gross profit if we lose a day in recon on a single car,” the GM says. “Once you have that conversation, you can get them to see the light and they have a greater amount of pride in their work because they’re contributing to something bigger than their own paycheck.”
Rule 3: Change payplans to match your goals.
The GM has moved from a flat-rate pay plan to a team-style approach to help focus reconditioning technicians and detailers on the need for speed. The program pays individuals off their combined repair-order (RO) hours — a move the GM believes will spur more collaboration and create a disincentive to load an RO with unnecessary items that only benefit an individual’s compensation plan.
“When everyone knows we all make more money by speeding things up, you’ll see things like the tech taking a car right off the lift and driving it down to the detail bay,” he says. “You can’t be fast if you’re putting fluff on the RO.”
Rule 4: Get better cars.
The GM and his team now expect vehicles purchased from online auctions to effectively be “market-ready,” unless there’s a compelling reason for an exception.
“It’s tough,” he says. “But you’ve got be buying good cars—late model, low mileage and good condition—to offset the older cars with higher miles that will need more recon work.”
Rule 5: Scrutinize estimated-to-actual recon costs.
The GM and his managers meet daily to compare appraiser estimates of reconditioning costs to recommended work.
“If we made a mistake with a purchased vehicle, and it needs significantly more than we expected or estimated, we must NOT make a second mistake and approve a much higher recon bill if the numbers don’t leave us a desirable initial sale profit,” he says. “In those instances, the car goes directly to wholesale and “we must accept that we made the mistake and move on without it costing us more money.”
A benchmark: If the actual reconditioning costs exceed the estimate by more than 20 percent, I recommend wholesaling the vehicle to apply the investment in another vehicle with better gross profit potential.
Rule 6: Work to lower recon costs without sacrificing quality.
The store currently averages about $1,110 in reconditioning costs, a figure the GM wants to trim by 20 percent to 30 percent. To reach the goal, his team now questions whether factory replacement parts/tires, body repairs, third-party dent/window/upholstery work is always necessary — and, if it is, to negotiate for the lowest possible cost. He also monitors policy expense to make sure the reconditioning work meets the store’s quality objective.
Rule 7: Reward the higher level of collaboration and trust between used vehicles and service.
The GM understands the “tug of war for gross profit” that often occurs between the service and used-vehicle departments over reconditioning. To address this risk, he has created a monthly bonus plan, paid for by the used-vehicle and service departments, to reward the reconditioning team when they meet their new benchmarks for reconditioning cost, speed and quality.
I think the GM’s rules are relevant for all dealers. In addition, the GM’s appetite for continuous improvement is a model other dealers would do well to emulate: “If you keep pushing the envelope in every single area, you’re going to get better results. You simply can’t get better results if you keep doing what you’re doing.”
Dale Pollak is the founder of vAuto. This and all entries to his blog can be found at www.dalepollak.com.
