Some used vehicle managers carry a double curse.
The first curse is their absolute focus on average front-end gross profit. They’ll say, “I can’t change this price because there won’t be enough front-end gross,” or, “I can’t buy this auction car because there won’t be enough front-end gross,” or, “I can’t offer the customer what their trade-in’s really worth because there won’t be enough front-end gross.”
The second curse is their inability to recognize that the front-end gross-focused inaction on each of the preceding scenarios ultimately hurts the performance of their used vehicle department, as well as the size of their paychecks.
The used vehicle managers who carry this double curse create an even bigger problem for their dealers—the less-than-optimal performance of their used vehicle department ultimately saps the other dealership departments of their ability to maximize sales and profits.
Surprisingly, some dealers appear to be aware that their used vehicle manager’s double-curse is hurting the overall dealership prospects, but they choose to do nothing about it. How else to explain the disparities I see across dealer groups, where the performance of some stores—measured by the net impact of a strong used vehicle department across their peer departments—completely outshine the others?
The difference, of course, is that the used vehicle managers at the high-performing dealerships have effectively exorcised themselves of the double-curse, or they never suffered from it to begin with.
I understand the exorcism can be difficult, particularly for used vehicle managers who have spent years in the business. Unfortunately, they’ve been carrying the double-curse for a long time, and every year makes it more difficult to remove.
Used vehicle mangers who eliminate the double-curse have come to embrace three operational realities they previously failed to see:
First, it’s essential for used vehicle managers to recognize that in today’s market, there’s often very little money left in a used vehicle after you’ve owned it for 30 days. This timeline has become even more critical in 2015 in light of increasing supplies of available used cars. I would encourage dealers to compare the average front-end gross profits of used vehicle sales that occur in 15 and 30 days or less, against those that occur after the 30-day mark. (Note: I would ask that this be a full and honest accounting, that includes the holding costs associated with every car, irrespective of its sales date.)
Second, used vehicle managers must align their inventory management and pricing objectives to retail a greater share of vehicles within the timelines that will maximize their front-end profit potential. Inevitably, the managers will recognize that today’s market requires a balancing act between selling a car quickly to maximize its gross profit potential, and sacrificing some front-end margin to put the car over the curb fast and earn another retail opportunity. This turn-and-earn mentality, which I call the Velocity Method of Management, is often counter-intuitive to the most die-hard, double-curse-carrying used vehicle managers. But, in the end, the math works—selling more cars more quickly will improve gross profits, even if front-end averages slightly diminish.
Third, as used vehicle managers begin to retail more used vehicles in shorter timeframes, they begin to work on perfecting the throughput of their operations. They build alliances and understandings with their service directors that time is money in used vehicle reconditioning. Cars get fixed and front-line and online-ready in a matter of hours or days, not weeks. They continually work on ways to press down the costs of reconditioning, which builds front-end margin potential and greater efficiencies for both departments. They measure and share the impact of their efforts throughout the dealership, showing financials that reveal double-digit lifts in sales and net profits throughout the dealership.
It’s this final step that often gets the dealer’s attention. They start to see positive improvements in the financials for every dealership department. In some cases, the more enlightened dealers take additional steps to make the total dealership gains an ongoing reality. They measure and promote the positive impact the used vehicle department creates across all dealership departments. The dealers might even change pay plans to recognize and reward the used vehicle manager’s total dealership contributions.
As I mentioned, eliminating the double-curse isn’t easy. But I haven’t met a single used vehicle manager who cured themselves, and now wishes they hadn’t.
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