Here’s a section from last week’s newsletter:
…To price it right you have to own it right. When you add packs to the high cost of reconditioning (that’s a subject for another newsletter) then you are at a huge disadvantage when it comes time to sell the car.
As promised, today’s newsletter is going to be about used car reconditioning.
I realize human nature is that people like to complain and want to blame someone for their inefficiencies. What do you think the number one complaint is I hear from Sales management when I’m in dealerships?
Yep, you’re right, the service department. Sometimes it’s subtle, sometimes it’s blunt, often tempered with an excuse or apology to dare complain about it. Early in my career my attitude was "Shut up, go to work and control the things you can control because it’s not going to change." Well, I’m here to tell you it does need to change and sooner rather than later.
If you review history, you know that the reason dealers charged full retail from the service department to the used car department is very much the same reason they implemented packs as was pointed out in last week’s newsletter. Sales managers have historically worked from cost up and it has made dealerships a lot of money over the years.
You can think what you want, but as time has progressed, the used car department has become an easy mark for the service department. The mere fact that the hours per RO on a used car ticket vs. a customer pay ticket is more than double should tell you something.
It’s not only the amount they are charged, but also the time it takes to get the car in and out of service. Used car managers will tell you they get charged for things that they don’t need fixed, and things that need to be fixed often are not. Almost everyone in the business today understands how crucial speed is to being successful. The lack of speed and efficiency in your service department as it relates to used vehicles is killing your ability to do volume and make the money you have the potential to make.
Creating speed and becoming more efficient should be your number one priority as you move toward 2013. I like relating our business to sports. Name a sport, any sport and today’s athletes are bigger and faster than they have ever been. With profit margins decreasing, your business needs to emulate sports. You have to get bigger (sell more cars) and become faster and more efficient than ever before.
Yes, becoming more efficient means speed but it also means figuring a way to reduce the cost from the service department. There are many pieces to this puzzle, but with creative thought I’m confident a lot of dealers are going to figure it out and for those who do they shall reap the profits. Dealers will all tell you they know the key to being successful is teamwork, yet the pay plans and territories that are set up in the dealership enhance the opposite.
In CarMax’s 2012 Annual Report, Under the section "Discovering Efficiencies" it states:
"Eliminating waste from our reconditioning processes has contributed to a year-over-year improvement in our gross profit per used vehicle sold in 12 of the last 13 quarters, while still preserving the competitiveness of our pricing. At the end of last year, we noted that our targeted efforts allowed us to achieve a cumulative reduction in average reconditioning costs of approximately $250 per vehicle, while still maintaining our high quality standards. While actual reconditioning costs will vary based on sales mix, these sustainable savings are now embedded in our cost structure."
So, forget that they don’t have packs. Forget that they don’t pay sales people and sales managers on gross profit. Forget that they don’t view the service department as a profit center. Forget that they buy based on data. Forget that pricing is controlled at corporate headquarters. Forget that 99% of what they put on their lot to retail, they actually retail…just forget all of that…but realize and don’t forget they have a $250 cost savings per car that you don’t have. They have 108 stores. They sold 408,000 cars last year and made $413 Million in their last fiscal year so they must be doing a lot right.
I had lunch this past Monday with two of the smartest people I know in the car business. Part of that conversation was that there are a lot of little things dealers can do a better job with in the sales department when it comes to managing the inventory, working deals, managing systems, etc.
I told them that even if all things were perfect in the sales department, until the service issues are fixed (cost and speed) it will be impossible for dealers to come close to maximizing their potential. The dealer has the power and expertise to fix any of these issues if they want to.
Here’s the bottom line: If you can become more efficient, more streamlined, and reduce the cost of repairs to your used cars then doesn’t it stand to reason that you will be able to sell more cars than you are currently selling?
Seth Godin, one of my favorite writers, wrote a blog this week and here’s the article:
Denying facts you don’t like
"Transformational leaders don’t start by denying the world around them. Instead, they describe a future they’d like to create instead. Denying the truth about relative market share, imperial power or the scientific method helps no one.
Gandhi didn’t pretend the British weren’t dominating his country, and Feynman didn’t challenge Einstein’s theory of relativity or the laws of thermodynamics.
It’s okay to say, "This is going to be difficult." And it’s productive to point out, "our product isn’t as good as it should be yet."
The problem with Orwellian talking heads, agitprop, faux news and Ballmer-like posturing is that they take away a foundation for a genuine movement to occur, because once we start denying facts, it’s difficult to know when to stop. Tell us where we are, tell us where we’re going. But if you can’t be clear about one, it’s hard to buy into the other."
If you’re happy and you know it and clap your hands. If you’re not happy smack yourself upside the head and fix it. That’s all I’m gonna say. Tommy Gibbs