In used car reconditioning, many dealers think the answer is to buy a “tool.” Just think of all the dealerships out there trying to just track reconditioning using email, paper, Excel or Google Docs.
This months Green Gazette article was written by one of our valuable ReconTRAC clients after he read our last article on embracing technology to improve - we hope you enjoy his perspective!
Stop me if you’ve heard this one—from dealerships, top management, or even your own mouth:
“You don’t understand: We’re not like other dealers.”
The last few years have seen a distinctive trend in the used car industry. Buyers are becoming much more savvy, from buying the right mix of used vehicles to using technology solutions that help them run their businesses more efficiently and ultimately more profitably.
The auto industry and the American dream go hand in hand. Ever since the first Ford Model T rolled off the assembly line back in 1908, the country has been crazy for cars, especially those made in the U.S.A.
We are fortunate to have some of the biggest and best automotive dealerships and reconditioning centers in both the USA and Canada as ReconTRAC clients. Throughout the years, we've been able to learn more from them than we could have ever imagined. What's really exciting, is that with this knowledge and understanding of what really works the best, we can take those best practices and apply them to how we evaluate and fix other dealers reconditioning processes.
Historically, May has long been a productive month for used car prices. In fact, last month was the 28th month in a row of used car price gains. Up 4% over last year, these price increases are good news for dealerships, but only if you’re turning over inventory.
With prices the highest they’ve been in years, dealerships will want to make the most of this by increasing their sales and maintaining a steady supply of used cars that are ready for the sales floor. One of the most important factors in the maintenance of your stock is the reconditioning process.
The automotive industry is changing. The average operating profits for dealers dropped by roughly $105,112 in 2018. It's now down to -$13,338. Expenses as a percentage of gross profit climbed more than 2 percentage points from 98.7% up to 100.2%. All of this comes straight out of NADA's recently released annual financial profile of America's car dealerships. This all seems like bad news for dealerships. But the story is still far from finished.
These days, the average cost of a truck is hovering around $50,000. More expensive trims can easily go for upwards of $80,000. With prices like these, you're pushing in on luxury sedan territory. For that price, you could get a BMW with a motion-operated infotainment console or a sound system designed to mimic some of the worlds greatest concert halls. But features like these are conspicuously absent from even the most expensive pickups. Some don't even have features that are now considered basic like touch start. Why is this, and is it going to change anytime soon?
Margin compression is a widespread problem in the automotive industry, one that doesn't discriminate between new and used dealerships. But these shrinking margins don't mean your profitability has to suffer. By making a few adjustments you can not only remain profitable but also grow your business — even with these tighter margins.
According to CARFAX, the value of a vehicle can drop 20% in its first 12 months of ownership, and will continue to drop 10% annually afterwards. That means that the vehicle may lose 60% of it’s value in the first 5 years of its life!
About Our Blog
Learn more about what we're doing to improve your business and workflow procedures.