AutoSuccess - May 2017

RECON ACCOUNTABILITY AND PROFIT ALIGN AT THREE-DAY ADR

Dennis McGinn 2017-05-11 15:00:02

I don’t mean to squeeze more juice from an already tired cliché, but time is money in used car reconditioning. Get used inventory spiffed up and to the sales line in three days, consistently, and that’s the sound of money. For years I have been promoting Time-to-Market (TTM) workflow as the measurement of exceptional reconditioning results. That’s still true, but we’ve discovered an even better way to talk about how to make recon operations more profitable: Average Days in Recon, or ADR. ADR is the heartbeat of TTM. ADR is a narrower, more specific reconditioning measurement within TTM. TTM starts at the earliest point where a car, independent of its source, is owned by the dealer and ends at the same point as ADR. For a dealer buying cars locally, in-transit time may be a few hours, but could be days if bought out of state. These conditions vary by day and by dealer practice, so while TTM is a good recon productivity barometer, it includes times not controllable by reconditioning. The clock on ADR starts when recon begins, at the point when the used car manager moves the cars from “in-transit” or “trade not cleared” into steps designated something like “recon starts now” and ends when the vehicle is signed off as “frontline-sale ready.” Why Care? Accurate recon measurement and the processes it measures is as serious as a heart attack. If your GM isn’t championing an ADR culture in your store, you might have the wrong GM. Here’s why managing ADR is so critical to used car success: Increases turns: Every 2.5 days shaved off the current recon cycle time equals one additional inventory turn. By turning vehicles quickly, fresh inventory is always on the lot and it gives you greater flexibility to meet changing market demand. NCM tells us the market shifts every 21 days. When turn is low, you have a lot full of SUVs and trucks when buyers are now searching for economy and rental cars for back-to-school wheels. More turns means more cars sold across the same time. Time depreciation: Time depreciates used car values, even as they make their way through recon. NCM tells us also this rate is $50 a day per car. This holding cost depreciation subtracts from sale gross —for a recon shop taking seven to 10 days to get cars to the front line, this depreciation is $350 to $500. By managing ADR to just three days, this depreciation alone drops to$150, for a lower profit loss. Margin windows: It’s hard to hit the magic 30-day margin window when half of that precious selling time is used up getting the car through recon. This must be carefully managed. A three-day ADR means more optimum merchandising and selling time. When you don’t recognize these relationships, margin melts away faster than a popsicle in August. Realize Three-Day ADR ADR focuses on just the phase of TTM that recon can actually influence. Recon has responsibility for and can be held responsible for only what happens within recon’s door, so to speak, including sublets. I wish I could tell readers that they can get their ADR down to three days simply by working harder and faster, but I’ve never seen that happen without the department being driven by, reliant on and accountable to precise, detailed and measurable practices driven by reconditioning workflow software. This software’s value is how it structures each step in the recon process. It makes sure technicians, detailers and others are on the job to handle the workflow. It also notes the completion of each step in the recon process and tags completion by technician or detailer responsible for executing each step. These processes then alert upstream and downstream personnel the status of vehicles moving through recon. The outcome is smoother workflow. Everyone involved works more fluidly as a cohesive team. GMs can check at a glance how recon is performing, where bottlenecks threaten and how recon is performing this week versus last and this month versus last. This is true management by objectives fulfilling the foremost principle of Management 101: Inspect what you expect. When the GM has this detailed performance data at hand, it’s easier to hold staff — and managers — accountable for operating to the clock to achieve three-day ADR. Reconditioning workflow software helps GMs and their department managers lower TTM and ADR. Your inventory will be fresher and more appealing to your market, regardless the marketing cycle, and sell at the most profitable margins possible.

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