Article

Time is Money in Used Vehicle Operations

August 2009, Auto Dealer Today - WebXclusive

by Kimberly Long - Also by this author


It’s no secret, with so many woes in the world of new car sales, dealers are focusing even more energy on areas like fixed ops and used vehicle sales. In many cases, with the loss of franchises, used vehicle sales have become matter of life and death for their dealerships.

It is perhaps more important today than ever before for dealers to fine-tune their used car operations to perform at peak efficiency—from what inventory they stock to updates in their reconditioning process. The predominant goal of many dealers is achieving a faster turn on their used inventory. In many cases, gross per unit has become a secondary concern. Moving volume seems to be the name of the game. To that end, dealers are changing the way they approach their inventory in many respects.

Inventory Mix
Dealers are observing their own market much more carefully to see what’s actually selling. For Ed French, director of operations for three dealerships surrounding the Bloomington, Ind., area (Community Ford in Mooresville, Community Chrysler in Martinsville, and Valley Chevrolet in Spencer), this means closely studying his Cross-Sell report to observe trends in consumer purchase habits in his backyard. “It’s a very in-depth study,” he said. “It gives you the lien holders, the models, breaks it down by model year and segment. I’ve studied that extremely hard and basically what I’ve done is I’ve made my inventory match the market.”

Jay Agresta, vice president of Benzel-Busch Motor Corp., a Mercedes-Benz dealership in Engelwood, N.J., takes a similar approach. Instead of a Cross-Sell report, Agresta relies on a couple of tools, one of which is reporting he gets from the manufacturer. “We can see what other Mercedes dealers are selling, we can see what other highline dealers are selling, by class, and that really has helped us pinpoint quite a bit,” he said. “We also use a software tool called vAuto.” Both of these tools have provided Agresta with insight into his market and uncovered “some of the opportunities that we might be missing.” That added insight, coupled with the store’s historical data, has helped him adjust his inventory. “We’re trying to take a closer look at what’s been traditionally a good seller for us, as well as what’s selling out in the marketplace, and then trying to balance those two.”

For franchise dealers, this means getting away from inventory that is comprised of mostly brand-centric vehicles and widening the variety of makes they offer in their used car operation. “My brand sign is meaningless in the way that I stock my used car inventory,” said French. “Because I have a Ford blue oval does not mean I’m going to stock exclusively Fords. I’m going to stock what the market is absorbing,” he stated.

“Traditionally, you look at any franchise dealer and anywhere from 60 to 80 percent of what they have on their used lot is from their brand,” observed Chris Irwin, general manager of Irwin Motors in Laconia, N.H. “The premise behind that is … understandable but somewhat faulty in that, ultimately, 60 to 80 percent of the cars that are selling in a dealer’s primary market are not from their brand, so it’s more relevant to be stocking what’s actually selling currently in my market. We’re a Toyota and Ford dealer,” he added. “Are we going to have probably more Toyotas and Fords proportional to what’s actually selling in our market with used cars? Probably, but nonetheless we are trying stock a more representative mix of what’s in fact selling in our marketplace.”

Due to tighter lending restrictions that don’t seem to be letting up anytime soon, dealers are also being very careful to buy inventory that fits the programs of their finance sources. “I’ve adjusted my inventory to match what the banks like to buy,” said French. “In the last 120 days, I have adjusted my inventory because it’s obvious that the lenders are getting a directive not to buy deep on a late-model domestic vehicle; in other words, no one’s giving us 80 percent of clean book on a used Chrysler, for example. I did the study on our Cross-Sell and found that used Hondas and Toyotas were actually a large part of our market and after consulting with the lenders found out that they’d advance 140 percent of book on [those makes], so I aggressively purchased used Accords, used Camrys, used Corollas and used Civics, and I have found great success with getting those vehicles financed by the lender and I’ve had fantastic customer response.”

Sourcing
Often, finding the right cars means going a little further to obtain them. “We’ve really changed our mix … and we’ve had to search greater distances to find those cars,” said Keith Kocourek, president of Kocourek Automotive Group in Wausau, Wis. He said his inventory buyer still attends auctions in person, but he has turned to online auctions in order to have a greater selection of vehicles.

“One of the things we’ve done is we’ve really paid close attention to what we pay for GM and Chrysler products because the majority of our lenders have reduced the advance to 100 percent of left-hand book,” said John Clutts, dealer principal of Clutts Auto Sales, an independent dealership in Hazard, Ky. He said they have been looking for other sources from which to purchase these vehicles in order to get a better price. “We were buying at mostly just brick-and-motor auctions. Now we’re using a lot of online auctions. In the past, it could take three days to travel to an auction and back; now we can take 30 minutes to go to 10 different sales.”

French said he attends auctions in person two or three times per week, simply because the proximity of his three stores to Indianapolis makes it convenient. However, he has also found it necessary to look outside his geographic region for the types of vehicles he needs and is doing quite a bit of purchasing from online auctions such as OVE.com and OPENLANE. He believes obtaining the right vehicles for his lot is worth the expense of transport even when buying piecemeal. “If the deal’s good enough, I’ll send a truck after it. It’s more expensive and it reduces your margin slightly, but I’d rather have a little less margin and have the deal as opposed to having no deal,” he explained. “I have gone as far as Connecticut, New York, Texas and Florida to get vehicles. I’m not a regional buyer, I’m a national buyer.”

In addition to considering a wider geographic area when sourcing their inventory, some dealers are also adjusting how often and how many vehicles they purchase. Agresta said the buying philosophy changed at Benzel-Busch last fall when things in the new car market worsened considerably. “We started buying pre-owned cars a little bit differently because we started to see such a rapid devaluation of the cars,” he explained. “We started buying not quite as deeply, and we’re buying more frequently ... we’re trying to buy almost every day.” Purchasing fewer cars at a time but buying more often gives them more room to react to fluctuations in the market. “By buying more frequently, I think you just get a better sense of the direction the market is going.”

Irwin expressed a similar view. He said at his store, they’re trying to develop a consistent, week-to-week buying routine, which he described as a “cadence.” While he is not purchasing several times a week like Agresta, the reasoning behind the strategy is the same. “We’re buying a fairly even number of vehicles on a weekly basis … not going out and buying a bunch of vehicles one week and then nothing the next week,” he said. “Really, it’s trying to hedge our bets a little bit in the event the market was to do something drastic.”

Some dealers are also adjusting their approach to trade-ins. “With new car sales being where they’re at, especially in the last six or eight months … you’re getting fewer trade-ins that could potentially retail,” said Irwin. “We’re trying to retail anything that we can get our hands on,” he said, explaining that they are now keeping and trying to retail vehicles that in the past they would have simply sent on to auction, like vehicles under $10,000.

French agreed. “If it starts, runs, and is physically safe, I’m going to retail it. I never appraise an older vehicle to wholesale. I appraise it to retail … That has served me well in all [three] locations.” In fact, he said, 30 percent of his retail business is made up of vehicles with a transaction price of less than $5,000.

Reconditioning
Reconditioning has been an area of particular scrutiny for several dealers, most of them focusing on process changes to help get cars through recon and out on the lot more quickly. “We’ve really focused on reducing the number of days it takes to get through the service and detail process from about five days to two or three,” said Kocourek. Streamlining the process has become much more important as their turn time on inventory improved. “Five days is a much higher percentage of a 45-day turn than it is of a 75-day turn,” he observed. “We’ve increased our number of detailers and we’ve structured the process to be more like an assembly line than just a detail shop. We’re working through the bugs on that, but it’s been pretty effective.”

French has overhauled his reconditioning process in a similar fashion. “I have a 72-hour turn policy in all my stores,” he said. “I have a reconditioning manager in each location. He statuses the vehicle with the needed reconditioning; we have a check-in sheet that is turned into the service department.” The vehicles are given top priority in the service department and will be on the lot within three days of their arrival. “That is a hard and fast policy,” he stated firmly. “If we have to stay all night to get a car ready to go, we stay all night and get the car ready to go. That’s the key to throughput.”

Irwin’s store has made some departmental upgrades to decrease the amount of time it takes to get a vehicle out on the lot. He recently installed several new lifts in the service department to not only accommodate their retail service customers but also “to be able to get vehicles through our shop, reconditioned, and out on out lot as quickly as possible … They’re doing you no good sitting there,” he said.

Agresta implied that his highline store is being a little choosier when it comes to reconditioning trade-ins that need a lot of work, a change that has helped them control costs a little better. “I think we’re being more realistic about how we approach [trade-ins],” he said. They are more likely to wholesale a trade-in that appears to need an excessive amount of reconditioning. “In the past, we probably would’ve taken a shot, maybe overspent a little bit in the service department and taken a little less on the pre-owned side,” he said, “but there’s a danger in that when the market’s changing as quickly as it has been. You can easily get caught down on a vehicle.”

Online Efforts
Irwin Motors is striving to get vehicles online as quickly as possible, both on the dealership site and various third-party sites they’re using. “How can we shave days off that? Can we get them up four days faster? It might not necessarily seem like a big deal, but it really does add up if you annualize it,” said Irwin. “We’re working with a couple of vendors to find ways to be able to, as soon as we take a vehicle in, get a price and a description of the vehicle out to our Web site and out to the third-party providers we’re using.”

Irwin said the dealership Web site and third-party sites like AutoTrader and cars.com have been extremely important to their used car operation. “Our primary market area has really expanded a couple of hundred miles because of the Internet,” he said. They have been so successful using the Internet, in fact, that not a single dollar has been spent this year on traditional advertising to advertise his used car operation. “We’re attracting customers from 100 and 200 miles away,” he said, because they are offering inventory online that is “in demand and priced competitively.”

Other dealers are keeping traditional advertising in the mix, but are shifting more of their budget toward the Internet. “Our marketing budget … over the past 12 months or so has been shifting more and more towards online [efforts],” said Agresta, adding that those efforts include Benzel-Busch’s Web site and listings on eBay, AutoTrader and cars.com.

Kocourek Automotive Group has also changed their mix to contain more Internet-based advertising, including a new Web site, banner ads and listings with AutoTrader and cars.com.

French, who has seen excellent results with direct mail, has made changes at Community Ford, Community Chrysler and Valley Chevrolet in the last six months. He’s now successfully advertising his used vehicle operation online. He attributes that success to his decision to hire a consultant to build his Internet department. As he described it, prior to bringing in the consultant, “I had nothing. I had bupkis.” He went from having no Internet sales to averaging 25 to 30 Internet sales per each of his three locations. “That was from dead-flat zero at the end of 2008,” he said.

He now has three Internet employees who handle only online sales and take no floor customers. The consultant helped French with everything from lead management and phone processes to learning how to take pictures and write descriptions for online listings. He also helped French get started on third-party sites like AutoTrader, cars.com and Craigslist. French said he keeps his online pricing competitive by checking online inventory every 72 hours to compare it against similar online offerings.

Sales Process
Because dealers are more focused on moving volume – and in many cases, earning less money for each vehicle – they have found it necessary to make some changes to the sales process.

“There’s ultimately a smaller gap between where you’re starting in a vehicle and where you’re ending up,” said Irwin, who added that the sales staff at his dealership had a fair amount of trepidation over the idea of accepting less gross per vehicle. However, he said, “Over time, fears have subsided.” He said he explained to them his belief that, although they would be working with less per vehicle, they would ultimately make more money because of the increase in sales volume. “They had to see it work,” he said. “As they saw some results, we’ve been able to slowly get some buy-in.”

Kocourek had no such issues with his sales staff. “We compensate our salespeople for volume and customer satisfaction,” he stated, adding that it’s been done that way for about seven years. “It’s a huge positive. Salespeople love it. They know exactly what they’re going to make … there are no surprises at month-end; there are no chargebacks that mess with their grosses. It’s very, very positive.”

Changes to the sales process at Benzel-Busch over the past 18 months have not been about gross but rather about education. “We’ve really tried to get more information out to our staff, really get them to understand the inventory,” said Agresta. “You really can’t sell a pre-owned car unless you know the car, so we do mandatory stock walks with our staff. It gets them involved in knowing the vehicle. It gets them involved in the pricing. It gets them involved in really overcoming their own objections to the vehicle, and that’s been really key.”

French has trained his salespeople to interact with customers on more of consulting basis and to assume that every customer has already done research on vehicles and pricing before they ever set foot in the store. “We acknowledge the fact that they’ve done that research up front,” he said. “Amazingly enough, when you say, ‘I’m sure you’ve done all your research and I’m sure you’ve got all your prices ready and I’m sure you’ve already got everything lined up as far as your financing goes,’ it’s a barrier breaker. It puts the salesperson and the customer on the same side all of a sudden; there’s not an adversarial relationship.”

Clutts said he hasn’t made changes to his sales process, but has recommitted to it. “These tough times make you sort of lean and mean,” he said. “It’s made us go back to the basics—more sales training, more focusing on working our current customer base. We’re forcing our salespeople to do a lot more phone work and set appointments out of our customer base instead of living off of lot traffic, which there doesn’t seem to be a whole lot of.”

Vol. 6 Issue 7

Comment

  1. 1. Jessica [ October 27, 2014 @ 12:28PM ]

    Auto IRP software helps dealerships track the inventory reconditioning process efficiently
    To learn more go to http://www.autoirp.com/

  2. 2. Testing [ January 06, 2015 @ 01:58PM ]

    [a href="http://google.com']Search[/a]

 

Your Comment

Please note that comments may be moderated. 
Leave this field empty:
Your Name:  
Your Email:  

Blog

On-the-Point

Jim Ziegler
A Faster Horse

By Jim Ziegler
The Alpha Dawg wonders where the demand for driverless vehicles is coming from and has good news and bad news — but mostly bad news — for Fiat Chrysler and Cadillac dealers.

Strangers in the Mall

By Jim Ziegler
The Alpha Dawg makes new friends, stands up for Cadillac dealers, charts the rise of the independent lots, and reconsiders free trade agreements.

You Can’t Handle the Truth

By Jim Ziegler

Watch Out for Grizzlies

By Jim Ziegler

Opening Observations

Over the Curb