If you are not estimating your recon costs then one could say you don’t care about your costs. But you would be hard-pressed to find a dealer operating in our diminishing margin environment that doesn’t care about their costs. However, you may find more dealers that are not comparing their estimates with their actuals. If you are not comparing your estimated costs with your actual costs, then one could say you don’t care about improving your process.
Comparing your estimated Recon to your Actual Recon you do on your vehicles 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. You are doing a good job if you can 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 the issues. It is important to try to get in on the front of this as much as possible. Meaning, set up the correct work (as close as possible) before you acquire the vehicle.
Let’s take a look at how Trace can help you on this process improvement journey.
Estimating your Recon
Estimating your used car recondition is the first step to understanding your costs. Your dealership will need to decide on your 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 work.
Recon overage is when your actual reconditioning costs are greater than your estimates. You are not setting up enough money up front 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.
Many can understand recon overages, but understanding recon underage could be a huge differentiator for your dealership. 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 is, cool…I scooped 50k additional gross from customer trade in. Perfectly valid
The other way to look at it…
…And the way I personally view it is, that is $50,000 I could have used to be more aggressive on trades. I would really dig into this if your Look To Book in vAuto is not where you wanted to be. You could look at this as saying hey, if I gave $2,000 more on some trades, then I could have closed 25 more car deals. Those 35 car deals would generate $2.5k-4k in additional gross….plus (depending on your trade-in %) you would possibly acquire 1/2 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 Trace can help
Trace pulls your estimated recon costs from your IMS or DMS. So your current estimation process stays the same.
Then Trace 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.