The point in the newsletter is that by doing recon as a “line item” you have a buying advantage over your competitors…if you buy more cars, you run more cars through your service department. If you buy more cars and end up with a lower cost than your competitor then you can advertise them cheaper. Advertising them cheaper on the Internet causes more traffic to show up. You sell more. You make more.
You turn more volume and more total gross goes on the books. CarMax reported in the last quarter that their average gross was $3236. Before I go further every used car manager will tell you that it’s impossible to outbid a CarMax buyer. The $3236 breaks down in the following way: Front $2212, F&I $1024.
But, but, but, but…the $2212 has no recon cost deducted from it. It’s hidden as a line item. So what? Why does it matter whether it’s part of the gross or a line item? It matters because of the competitive edge it gives you in buying, which runs more numbers through the store.
I don’t think many dealers are even close to making the switch, but in time they will have to do something creative to give them an edge in acquiring cars and an edge in getting the customer to show up at the front door. The front door traffic is being driven by Internet pricing. In general dealer’s average grosses continues to go down.
We can both agree that Internet pricing is moving all dealers to more of a "one price" concept. Going to pay plans that pay on volume rather than gross is a direction that more dealers are moving towards (CarMax.)
At the risk of contradicting myself, the reality is that if we did not pay managers and sales people on gross then it would not matter what we charged them in service.
We can’t always agree on everything, but I think one thing we can agree on is the "way we’ve always done business" is not going to be as effective as it once was. Technology is changing the business faster than most can keep up.