5 ways to reduce cost erosion on used car inventory

Every day a used car doesn’t sell costs money. These 5 ways to reduce vehicle cost erosion are vital to your dealership’s ROI.

Asset depreciation is an essential concept for used car dealers because it cuts into profit. While you’re undoubtedly aware that a vehicle’s value erodes as it ages, you might not know that holding costs eat into your profit margins, as well.

The cumulative expenses associated with holding a vehicle, including the cost of capital and floor plan financing, reduce the amount of money your dealership will make on the sale. The clock starts on these expenses the second you bring the vehicle in, which should motivate you to recondition it and get it on the sales floor as quickly as possible.

Depending on the vehicle, your cost erosion could be as much as $40 per day. If it takes you ten days to get the car on the lot and another five days to sell it, the car’s value may have eroded by $600.

When you can get the recon done in two days and sell it in ten days, the cost erosion only equals $280.

Dealerships might move hundreds of used cars per month, so saving $320 per vehicle adds up quickly. The reconditioning job’s cost can also cut into your profits, especially if some of the work is unnecessary.

Here are some methods you can use to reduce the cost erosion of your used vehicle inventory.

1. Manage your turn

It goes without saying that the faster you can move a vehicle off your lot, the more profit you stand to make. That’s because you can move another car into the space as soon as it’s sold, potentially generating another sale.

It’s common wisdom that the used car market shifts every 21 days, so what might sell quickly today could struggle to sell three weeks from now.

To reduce cost erosion for your dealership, you’ll need to manage your turn: This means having an ideal timeframe for turning each vehicle that will maximize your profits. You should also ensure that every team member is aware of the plan and has a clear idea of their role in the process.

2. Cut down your recon time

The time it takes to recondition a vehicle is a major factor in optimizing your turn rate. If the average vehicle you acquire takes eight to 15 days to recon, it’s almost impossible to take advantage of the 21-day market shifts. You’ll only have about a week to make the sale before the market shifts again.

If you can shave a few days or even a week off your recon time, it gives you that much additional time to make the sale and increase your profits. You’ll also minimize the holding costs that can decrease your ROI.

Of course, reducing your recon time will take significant collaboration between your used vehicle department and the service department, keeping in mind that your service technicians are also responsible for retail repairs.

3. Get your team on the same page

Communication between the various branches of your dealership is critical because it ensures that everyone knows what you expect of them at all times.

Your sales department wants a particular vehicle reconditioned and on the lot in four days, but does your service department know that? Do they even have time to complete the job by then?

Does your sales manager know that the service manager has sent a vehicle to an off-site vendor for some necessary recon work?

Communication failures within the dealership can lead to chaos, as the sales department could be attempting to show a vehicle that isn’t even on the lot.

Ensuring that everyone involved in the recon process is sharing the necessary information can be challenging, but it is vital when addressing vehicle cost erosion.

4. Lower your recon costs

There could be an opportunity to lower your recon cost in some situations. A GM might ask the service manager whether factory replacement parts, body repairs, upholstery work, and new tires are necessary for a particular recondition.

In some cases, you can probably get away without addressing some of this recon work. There might also be situations where subletting the job can save money, although this is rare.

5. Use the right software

In the end, reducing the cost erosion of your used car inventory comes down to every member of your team staying on task and communicating their expectations, capacities, and progress to each other.

Of course, this relies on your employees taking time from their busy days to communicate — that could mean sending a text, writing an email, or making a phone call to other members of the team to keep them in the loop. People get busy, and these “paperwork” tasks are the first things they start to skip.

One solution is to invest in workflow software that tracks every car’s progress in real-time. These applications begin the process at intake and don’t stop until the vehicle is ready to sell. You’ll be in control of each aspect of the recon process, so you can approve work, hold the right people accountable for delays, and keep an eye on the location of each car at all times.

The result? You can cut the idle and retail-ready time on every car you bring in, reducing your cost erosion.

ReconVelocity provides dealers with the tools they need to manage and track the recon process from beginning to end. Our software automates recon workflow, streamlining the process and saving you money. Request a demo today or call (850) 616-6294 to speak with one of our recon experts.

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