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Giving Up Gross Before the Sale – Calculating Lost Profits in Recon

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Dealership used car managers are under grueling pressure to find ways to maintain inventory levels while holding onto gross profits. With wholesale prices steadily rising and used car sales dipping year-over-year, the struggle is more surreal than ever.

With forces beyond their control threatening profitability, there are things managers can do to protect used car profits – starting from the time a vehicle is purchased at auction or taken in on trade.

Giving Up Gross Before the Sale - Calculating Lost Profits in ReconFrom the point of acquiring preowned inventory for resale, the dealership begins incurring costs while simultaneously vehicles begin to depreciate. The moment the dealership invests in a vehicle based upon profit projections and estimated reconditioning costs, the clock begins to tick on the vehicle’s profitability. Controlling recon costs and maximizing the number of selling days available is key to maximizing used car gross profits. So, as the clock begins ticking, managers need to start minute-by-minute tracking of each unit’s progress to the front line.

Whether taking in a trade or buying a car from auction, managers need to immediately get photos of vehicles online with quality descriptions – even before leaving the auction in the latter case. Most of the time, it is reasonable to expect that vehicles can be listed online with photos within the first 24-hours of being acquired although there may be a few in the mix with exceptions that might extend this to upwards of 48-hours.

Using recon workflow management software, managers can automatically track each unit, minute-by-minute, as it moves through the reconditioning process. Real-time notifications about exceptions and step-progress are crucial to shaving hours and even minutes off the time it takes a vehicle to move from check-in to inspection to the shop and so forth. Idle time between steps is a profile killer, so this is tracked separately – giving managers real-time insight into bottlenecks so that swift action can be taken to get the process back on track.

Recon process efficiency is essential to speeding up the Retail-Ready Time of used inventory. It ensures that costs are controlled, and units turned quickly so that vehicles sell for as close as possible to the profit margin estimated at appraisal. The faster vehicles are turned, the faster those profits go back into the hand of the used car manager so that the cycle can begin again.

Managers need a solid understanding of the dealership’s used inventory turn rate, as well as key financial information to accurately calculate daily holding costs and to see how these factors impact the profitability potential of each unit.

Using our Used Car Turn Calculator and Used Car Holding Cost Calculator tools, managers can calculate their current turn, daily interest cost per unit, and average daily holding cost per unit. These figures can then be input into our Recon Auditor to estimate the amount of gross and selling days lost on each unit while in recon.

Again, process management software that brings transparency to the recon workflow so that managers can see each unit in each step of recon, whether on-site or at a vendor location, is necessary. The Recon Auditor may be a useful tool for someone using a spreadsheet or a manual log to track recon units. Such outdated techniques for managing such a complex operation is inefficient and will not enable a manager to control costs or maximize profits.

Karla Guleserian, MSEC
ReconVelocity Recon Expert

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