Chris, I completely agree with the premise of the article. If you really want to “make money” on vehicle reconditioning you have a do a few things.
The first is as you point out to track the cost of reconditioning, but the second is to have a benchmark cost for each vehicle category. It’s like flipping a house, you buy low, input the least amount possible and sell high as fast as possible. To do this successfully dealers need to ask themselves if they are marketing a commodity or a customized product. Are they pricing against any other 2009 Toyota Camry or are they taking extra care in reconditioning to market this specific Camry that has a condition and overhauls that are hard to come by? You can make money either way but you maximize your money when you have a strategy for your used vehicle department. When purchasing, sales and the used car department don’t talk it’s anyone guess as to the upside potential on a vehicle and you leave money on the table. The margin game here is as complex as any commodities market and I do think real-estate is a good starting comparison to conceptualize the process.
Another hugely important component is to set a standard for the quality of the final product. This not only helps you with the sale to the customer but also in determining whether or not to spend up on tires or for dent removal. You want to know if you can get the money back, the same way you wouldn’t invest in marble counters for a mobile home. Setting a standard for each vehicle will help you control cost once you begin to track them, to ensure margin preservation.
Lastly, you need a process for reconditioning vehicles. As a depreciating asset, you need to complete the recon process quickly which means understanding the available capacity for all areas of the work that needs to be done. I can’t tell you how often I’ve had vehicles “stuck in paint” or “stuck at a vendor” for thirty days or more. This kills the “velocity” you referenced. The important metric here is the lead time or the total time it takes for a raw vehicle to go from acquisition to the sales lot. A deeper dive would mean understanding all of the individual process cycle times that add up to the overall lead time. To really be at the master level you want to look at the value added time of each subprocess to determine how to “speed them up”.
There is a ton of margin potential here for those who are willing to go deep into the economics and operating principals of vehicle reconditioning, but dealers don’t. It also happens to be one of my favorite subjects (geeks me out) to discuss as it gets so overlooked and simplified by dealerships!
