CARY, N.C. - Do the math on this one: Bourne's Auto Center is stocking less and selling more.
Previously, the number of used retail units that the store kept in its inventory was in the high 300s, said general manager Michael Kelley. This year, the Boston-area independent dealer has reduced that number to around 312.
However, its used retail sales have actually gone up, climbing from 194 per month in 2013 to approximately 215 per month in 2014.
In a June interview with Auto Remarketing, Kelley said Bourne's has grown its turn by about 12 percent.
Tighter turns, fewer units in inventory, stronger sales - this all has a direct relationship to the dealership's reconditioning process, and its target of getting cars to the front line faster.
"Obviously, our service department reaches a capacity. So, the biggest and the most important thing is that we get the vehicle to the front line," Kelley said. "And when I say to the front line, I mean detailed, photographed with 40 some odd photos on our website and then mechanically serviced, and also taking care of any sort of body shop issues, any sort of wear-and-tear on the outside, things that we would want to do to make a good product.
"By having less inventory, we're able to get the cars to the front line faster, which means that when the customer comes to look at the car, it's pretty much ready to go," he continued. "Very rarely are they asking for anything additional to be done. Their age-old question is, 'When can I take the car?' Our answer is, 'Right now.'"
This approach to get cars retail ready quickly is something that resonates with top dealers working with Mike Black and his team at Dent Wizard International.
Black, the company's chief operating officer, says that a lot of times, it boils down to consolidation of recon services.
"The top dealerships we work with want their vehicles 'front-line ready' as quickly as possible. Time is money. So they're accomplishing this in a number of ways," he explained.
"Using a consolidated service provider naturally reduces repair cycle time and cuts down on resources required to manage the repair processes," he continued. "And having a service provider that uses sophisticated technology for estimating and invoicing cuts time and costs, too."
The longer the dealer has to hold on to the car, the less room for profit margins. Black provided Auto Remarketing with data - coming from research done by ADESA - that charts used-vehicle gross profits by days in inventory.
The chart, as you might imagine, has a short upswing at the beginning followed by a long downward slope. Vehicles in inventory between 11 and 20 days - or even 21 to 30 days - generated close to $2,000 in gross profit per unit, with margin percentages at 13 percent.
As time wears on, however, and the car continues to sit on the lot, those numbers trickle downward - and once the days-in-inventory exceeds 60, the margin percentage dips to 9 percent with gross profit per unit between $1,000 and $1,500.
Once the car is there for more than 90 days, margin percentage is 5 percent, and gross profits are less than $1,000 per unit.
Granted, these numbers are from a few years ago, Black says, but he has found that the "data still holds true based on several discussions with senior dealer executives."
And these figures align with what Dent Wizard is aiming to achieve with quicker recon.
"The name of the game is to provide service to dealers, whose real focus is selling cars and driving service. That's their game. So, when I think about time, there is a window of time where the dealer can really maximize their retail selling ability, in terms of dollars, and then maximize their gross margin," Black said.
"And that window dries up within about the first 30 days. So in other words, when you look at dealers that have a very clear focus on turning vehicles within 60 days … after 60 days, their ability to make margin on that particular unit is effectively eliminated," he continued.
"Because when you look at holding cost, in terms of floor planning and the interest that they're paying on those vehicles or on that inventory, the longer you hold it, the more money it costs you," he said.
While acknowledging it might be the same for every dealer, it typically would cost a store that is floor planning a vehicle between $30 and $40 per day just to keep that car in stock.
Hence, this is why it's important to get that car frontline ready and reconditioned "very, very quickly," Black said.
If a customer comes in with a trade-in that has a litany of work to be done, Dent Wizard can aid dealers on the cosmetic recon side.
"And then if we can take a couple or three days out of that cycle, because they're not waiting on the wheel vendor to show up, the PDR tech to show up, the bumper process to be handled, the interior stains to be removed, the carpet dyed, the steering wheel cover to be re-wrapped," he said. "All of those things cost the dealer time in terms of reconditioning those vehicles.
"So, therefore, if a vendor such as Dent Wizard can bring all of those services to them at a fair and equitable price, and we can help them manage the project - and more importantly, deliver on the back end, the technology that says we had the vehicle for 13 hours, and we turned all the cosmetic repair inside of six to 13 hours - that really drives value for the dealer," he said.
Dent Wizard offers dealers a consolidated approach in the form of its Frontline Fast cosmetic repair program, which it launched in 2011.
As explained on Dent Wizard's website, Frontline Fast is an expansion of the company's brand to offer dealers a vast array of cosmetic reconditioning services all from the same source.
Black says the company's approach to dealers or dealer groups with Frontline Fast is to provide three or more services, including paintless dent removal, paint and typically something along the lines of wheel and/or interior work.
"The idea is to consolidate vendors," he explained. "One partner, simplified vendor management, simplified invoicing management and a heightened awareness around reconditioning vehicles in terms of time."
In other words, instead of the dealer having, say, seven or eight vendors to complete all the reconditioning tasks, Frontline Fast aims to package the services into one offering.
Additionally, Black says, "It allows us scale and the ability to add some SG&A to manage the business for you and work strictly with your people so we can reduce time in getting vehicles reconditioned, through the reconditioning pipeline and the reconditioning process, so that you have vehicles frontline ready at an escalated rate."
All of this is not to say doing a quality, thorough job isn't important. Most, if not all, in the industry would attest that it is.
But it appears the sweet spot is to do a quality, thorough job in a time-efficient manner.
Consider a February column posted to the Velocity Overdrive blog from vAuto founder Dale Pollak, who shared a memo he received from the general manager of DePaula Chevrolet.
In the memo, which was addressed to the dealership's employees, GM Paul Lynch says this:
"What our goals in used-car reconditioning should be are quality and speed (2.5 days or below). I believe another store goal should be to get our average monthly recon ROI dollar amount under $1,000 per copy. Last but not least, the final goal of the reconditioning department should be to minimize policy expense …
"If we execute on all four of these goals, we will sell more used cars," he goes on to say, "and the parts, service department and used-car department will all make more money."
Source: Auto Remarketing News Magazine