Dealers using smart post-pandemic vehicle stocking and reconditioning practices will be able to approach a 12-times annual turn rate, say recon experts.
It’s a matter of spending money wisely, scrutinizing processes and “mitigating risks involving inventory decisions,” says automotive consultant and dealer Ed French.
“Recon turnaround time is huge, but now it will be the king of ROI,” says Jasen Rice, owner of Lotpop, an inventory and Internet marketing and processes consultancy.
“Any time a dealer wants to lower inventory, their processes have to be better; that’s how it works in any industry,” says John Napoleon, dealer principal of Carson City Hyundai in Carson City, NV.
Not often factored into COVID’s impact on the industry is inventory transportation.
Vehicle haulers and transport drivers will be in shorter supply as the result of COVID’s economic collapse, says John Robertson, senior executive vice president for ShipMyCarNow.com.
“My unqualified, gut feel is a span of 60 to 90 days before dealer inventory backlogs get to where they need to go,” he says. “Dealers who have pent up demand will purchase.”
Robertson believes many dealers will retain existing inventory, choosing to retail those cars as “sale of the week” specials.
“The finance companies have limited floor plan access to money,” he says, “and not only are some auctions closed, but dealer floor plan is reduced, so dealers can’t freely go buy cars now. As money is freed up by finance companies, we will see a huge rush to get cars out of auctions to dealers’ lots.”
French notes how the de-fleeting of rental car companies and the 1.8 million off-lease units that will arrive at dealerships over the next 90 days will put further downward pressure on the used car market.
“We saw this happen in 2008 and 2009 as well, though not as significantly as this will be,” he says.
Coming out of the pandemic, most dealers will choose to continue carrying their typical sale rate: carrying 150 vehicles to sell 100. But Rice says that practice is now unwise.
“Given the new 30-day inventory turn goals, it’s going to be crucial dealers don’t overstock,” he says. “But they do need to work their inventory flow smartly.
“We can no longer source 10 to 30 replacement cars or so after a busy weekend. It can take one or two weeks before those cars hit your lot, which equals seven to 14 days of lost selling time. Then, that big lot of cars arrives and floods recon and overwhelms the staff, so time-to-line falters,” Rice said.
Instead, “replacements should already be sourced beforehand and into recon, so those cars hit the sales lot within two to three days.”
Dennis McGinn, Rapid Recon’s founder and CEO, says dealers using workflow software tools reduce reconditioning cycles from two weeks or more down to 72 hours. (Dennis McGinn, left)
Many dealers using Rapid Recon’s software get used cars sale-ready in time to take advantage of the new 21-day prime-retail window, McGinn says, adding that’s a benchmark for maximize margins. It also increases inventory turn rates.
Mobile and remote workflow assets such as vehicle location and management tools that are included in in some recon software systems also enable dealership staff to work productively and practice social distancing.
Vehicle transport will be an issue for many dealers once governments lift stay-at-home restrictions.
“Transportation and logistics will become as crucial as the car,” French says. “f I buy a car Friday, I want it here Monday, the nature of just-in-time deliveries as we come out of COVID.”
“If I have only 30 days now to retail cars, that means I can ill-afford cars sitting around a day or two to get into recon,” he continued. “Having in place an automated recon tool to drive this rate of turn is no longer a luxury, but a necessity.”
Napoleon, as are many dealers, is using the downtime to invest in seizing post-COVID opportunities. “Situations like COVID that come along battle-test plans,” he said. “Those of us who make it will have learned how to be more efficient.”
