Automotive Digital Marketing

Professional Community for Car Dealers, Marketing, Advertising and Sales Leaders

Loading... Be Patient!

From the NCM Institute: Debunking “Retail Recon”: Why Your Used Cars Aren’t Competitive Written By: Wayne George

Today's blog post is by Wayne George, an NCM Executive Conference Moderator for several NCM 20 Groups. Prior to joining NCM, Wayne spent 29 years in the retail automotive world. He was also a charter member of the NCM General Managers Top Twenty Group for seven years.

  

Your service department charging retail rates to recondition your vehicles isn’t really why you aren’t as competitive as you could be. Let’s look at some facts.

   

Domestic and import average hours per Internal RO in our NCM composites usually comes in at about 2 hours. Effective labor rates are about $90. That means for most of our clients, the labor cost of recon is $180 per RO. Parts sales related to that labor is still running at about a 1:1 ratio. With that in mind, the average parts and labor total of this recon will come in at about $360. Let’s get crazy and discount all of that work by 45% (a very generous discount to the used vehicle department). We now have decreased the cost of that recon by $162 dollars. I would submit that no dealer would lose a deal and not be in a competitive pricing position over $162 in service charges. By the way, all of these examples and ratios hold true for luxury vehicles as well, the numbers are just slightly higher.

   

Now let’s dig deeper. Our NCM database shows us that reconditioning costs per vehicle for domestic and imports average about $800 per vehicle (this varies by franchise and by how strongly the manufacturer's CPO program is embraced). So why is there a spread between $360 (parts and labor costs) and $800?  It’s all the other stuff that we do to the vehicle to make it front line ready. Most of this type of work is done very close to cost rather than at full retail: tires, glass, paint and body, dents, etc. are just a partial list of what makes that difference.
   

So where is the competitive disadvantage in our recon so far?  Is $162 really creating a competitive issue?  Here is what I think is really happening as opposed to a sound practice of the shop charging full retail for reconditioning. This is just a partial list of what makes many dealers non-competitive and drives their vehicle costs of sales too high. Again, we see that many dealers have at least a couple of these items that increase vehicle cost going on most of the time:

  1. Unreasonable hard packs. We all know hard packs were created in most cases to cover poor practices within a store. Bad pay plans needed to be hidden, bad inventory management leads to wholesale losses so we need a pack. Expenses are out of line so we need to bring gross back in without paying for it etc., etc.
       

  2. A poor trade evaluation or recon evaluation leads to careless and unnecessary spending of recon monies.
       

  3. There is no one in the store monitoring and controlling what the shop does once they have the vehicle. Work is unnecessary, being overcharged, and in some cases padded.
       

  4. Shops are taking the factory CPO guidelines to an extreme and are demanding repairs over and above guidelines.
       

  5. Recon cycle time is not being managed and results in multiple service trips and vendor touches to get all the work done only adding to recon costs.
       

  6. Aging in most inventories requires vehicles be brought back to standards hence producing a second recon RO and a double dip for the shop.
       

  7. Used vehicles are not being given correct pricing on competitive menu and routine maintenance items. Whatever a retail customer pays for brakes, alignments etc., needs to be passed through to used vehicles as well.

   

I am sure there are more underlying costs that I haven’t thought of, but it’s just too easy to pin all of the above issues on the practice of pricing recon at retail rates. If a dealer doesn’t have issues with these seven examples or the store is properly managed to eliminate all of these issues, he or she would have no problem charging full retail for repair items done in the shop—and that dealer would have a competitively-priced product to sell and at the same time, protect used and service gross opportunities!

Written By: Wayne George

Views: 331

Tags: &, Accessories, Analysis, Effective, Expense, George, Inventory, Investment, Labor, Management, More…Order, Parts, Pricing, Rate, Reconditioning, Repair, Return, Service, Used, Vehicle, Wayne, on

Comment

Oops... You need to stop "Lurking" on ADM and become a more genuine Automotive Professional by completing your membership registration. As a registered ADM Member, you can post comments, publish your own articles (be a star!) and start Forum discussions. Stop being an online "Peeping Tom" and JOIN ADM RIGHT NOW!

Join Automotive Digital Marketing

Comment by David Ruggles on March 22, 2013 at 1:57pm

The fact remains there is simply no reason for retail recon.  It is nothing but a ruse to stoke the shop at the sales department's expense.  Now that the Internet limits what a dealer can charge for a vehicle and still expect to turn it quickly, there is simply no rationale remaining.  Dealers with excessive recon structures routinely force their appraisers to trade for a car based on taking it immediately to the auction because they can't afford to recon it.  There it is purchased by their competitor.  OR the appraiser stands down from the trade and loses deals the store should have had.  Where is the accountant quantifying this lost revenue?  If you want to pencil a case for retail recon in the face of all common sense, don't leave out the lost revenue.  After you've done that, count up the lost revenue due to running off decent sales talent.  Why would a salesperson or manager with a sense of pride and self worth tolerate retail recon?  It is a clear ruse to pencil revenue from one department to another, and without business justification.  Its just stupid.  Pollak is right about this one too.

Comment by Wayne George on March 22, 2013 at 9:40am

Thanks Randall.  Great points.

Comment by Wayne George on March 22, 2013 at 9:39am

Dave

I am not disputing that at times dealers may want to discount recon work.  The article and opinions were written to dispute many of the consultants out there that are hanging their hat on the fact that New Car Dealers are not competitive in their Used Car pricing model simply because they charge full price for the recon done on their vehicles.  We all know it is a much more complex business and every factor needs to be considered when developing dealership operational guidelines.  My point is that there are far more and much bigger issues in many stores that create a Used Department that is not maximizing their opportunities.


Influencer
Comment by Randall Welsh on March 22, 2013 at 8:29am

OK, this one hits home for me. Dealers must realize the times have changed. They have to be realistic in today’s automotive market. Packs were designed to take care of those items as Garry mentions above and policy repairs after sale (that have reduced dramatically as vehicles have improved). Only because proper practices were not put in place and followed to begin with. Retail recon is not as big an issue as hidden costs, like the other items Garry mentioned. The reality is your profit is made at the time the vehicle is purchased. Too many times I have witnessed, a higher ACV to “make the deal”, when the real issue is who is making that decision. I also understand, as business goes, we are asking for more sales from those less educated in making these decisions. Or, as one Dealer stated, “you get what you pay for with employees”. My thought on this is, good decisions are created at the top and those processes need to be stated and then inspect what you expect to be done. rwelsh@cimasystems.NET

Comment by David Ruggles on March 22, 2013 at 3:49am

The vehicle sales departments do not exist for the purpose of being savaged by other departments.  Perhaps this is really about ensuring the sales staff doesn't make too much money.  Demos have been taken away, health insurance policies weakened, packs increased, markups reduced, etc. etc.etc and we wonder why we can't attract and keep good sales people. 

Comment by David Ruggles on March 22, 2013 at 3:44am

This completely ignores the fact that recon in totals might be MUCH higher if the retail recon dealership could actually trade for vehicles that require more recon to become salable.  Instead, they hand that business to their competition or wholesale vehicles that others could retail.  In this day and age of pre-owned inventory shortage why would a dealership want to do that?  

If you had a major fleet come to you and offer you the opportunity to all of their maintenance in return for a discount, you'd jump at the opportunity.  Instead, let's hold our own departments hostage.  Revenue that you could have had, should have had, but didn't get, is lost revenue nonetheless.

http://autosandeconomics.blogspot.com/2010/03/internet-and-dealersh...

Automotive Professional Network and Resource Exchange for Car Dealers, Managers, OEM and Marketing Practitioners seeking Best Practices.

Please Consider Automotive Marketing Professional Community Sponsors

ADM Badge

Loading…

Based On Your Interests...

ADM Consulting, LLC

Onsite/Offsite Combination ADM Consulting, LLC Professional Services
Select the maximum monthly investment you plan to make
$USD
Sign up for

Automotive Marketing Tools

Get ADM Toolbar

Click here to take the ADM Member Survey

Getting too many emails from ADM? Click mailbox below to control which types of alerts and updates you are sent......


Instagram

Top Automotive Marketing Forum Discussions

Share the Best Content w/AutoMarketing Community

© 2018   Created by Ralph Paglia.   Powered by

ADM Badges  |  Report an Issue  |  Terms of Service