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Making Sense Of Recon Costs, Estimates, Overages And Underages

Making Sense of Recon Costs, Estimates, Overages and Underages

If you are not comparing your estimated costs with your actual costs, then one could say you don’t care about improving your recon process. And if you are not working to improve your recon process by reducing ADR, then one could say you don’t care about profits.

You would be hard-pressed to find a dealer operating in our industry that doesn’t estimate their monthly expenditures and holding costs. Comparing your estimated recon to your actual recon will help you understand and control your costs. Improving your process based on this comparison will help you maximize your used car profits.

The comparison between estimated recon and actual recon should be as close to zero as possible. Your dealership is doing a good job if you continually fall within the range of + or – 5%. Outside of this range, you will need to determine whether it is the estimations or the actual recon that is causing you to lose profit. It is important to try to get in on the front of this as soon as possible. Meaning, set up the correct workflow before you acquire additional vehicles.

Let’s take a look at how ReconVelocity can help you improve your processes and add inventory turns to your bottom line.

Estimating your Recon

Estimating your recon costs is the first step to understanding your actual costs. Your dealership will need to decide on a standard process for this estimation.  Some dealers assign a set cost to any car prior to reconditioning. Others will do the trade walk and then assign packs and enter this information into their IMS/DMS. The first step is setting up the correct workflow.

Reconditioning Overages

Recon overage is when your actual reconditioning costs are greater than your estimates. You are not setting up enough money if your recon average is over your estimate. Therefore, you are losing front-end gross that the trading customer should be paying for. If you constantly have recon overage, you need to look at your evaluation process for assessing each individual car or raise your estimate on cars moving forward.

Reconditioning Underages

Many dealerships understand recon overages, but understanding recon underage could have a huge impact on your gross (one you might not yet realize). Recon underage is when your actual recon costs are under what you estimated.

If your recon average is under your estimate, then you might be missing trades. This one is BIG for a “velocity” store. Let’s say at the end of the month, you average $500 under your recon. Well, if you traded for 100 vehicles then that means there is $50,000 made on overestimating recon. This can be looked at in 2 ways depending on how you view your business.

One way to look at this is, “Great… I scooped up 50k additional gross from customer trade in.” Perfectly valid

The other way to look at it…and the way we personally view it is:

You underages reveal $50,000 you could have used to be more aggressive on trades. If you gave $2,000 more on some trades, then you could have closed 25 more used car deals. Those 25 used car deals would generate $2.5k to $4k in additional gross….plus (depending on your trade-in percentage) you would acquire half as many trades for your inventory..and the reconditioning that goes along with them.

So if your average recon is $1,000 and you make $2,500 Front/Back Gross per vehicle, then when you look at the total gross generated you would be at (25*$2,500 =  $62,500) + ($1,000* 12 = $12,000) = $74,500. That’s a 30% increase in gross from just “scooping” that 50k. This is also not including the sale of those trade-ins.

How ReconVelocity Can Help

ReconVelocity pulls your estimated recon costs from your IMS or DMS so your current estimation process stays the same.

Then ReconVelocity will track any additional costs associated with the vehicle during the reconditioning process. You will also be able to see a quick view of your reconditioning overages and underages for the month. Remember, the average overage/underage will tell you how much per vehicle you are losing or can give up on the next trade.

 

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