Below is a question I recently received and my response:
Q: I have read and wholeheartedly agree with Dales last couple of Posts at Velocity, Being a Franchise dealer the current wholesale price spikes are only amplified by the issue of how to balance a profit center in the Service Dept as well as the Used Car Dept. As an example a recent 05 Grand Cherokee that required 3 tires(used the new spare) and 4 wheel brakes, as any of the current off lease units over 30K requires, had an over $1400 RO. Basic reconditioning costs as far as I am concerned. Fortunately the overall condition was such that any further cosmetic issues were negligible but most of these units have at least front and rear covers an additional $300. Add in $170 recon and $2000 total recons are quite common. Not sure how the Mega Stores handle mechanical/cosmetic reconditioning, cannot imagine them, after what I have seen them pay for Grade 2-3 cars, adding in almost $2000 for recon and I know the Independent Used Car Lots do not have these types of costs.
We have a Managers Meeting on Monday to Review and throw some ideas around and I am looking for some “Outsider” Input. What are your feelings on this issue?
A: Your question magnifies my concern about what guys are paying for these vehicles today. You simply can’t afford to recondition these vehicles to the max and pay super high prices to acquire them.
Recently I heard of an unconventional sales approach that is being tried with some success on the east coast. There is an operation that lists their cars for sale for very attractive prices prior to doing their cosmetic and mechanical reconditioning. The concept is that this dealership is completely upfront in their advertising as to the vehicle’s current condition. This allows the buyer, who is attracted by a low price, to make the decision for themselves as to how much, if any of the reconditioning is performed post sale by either the dealer or a lower cost, 3rd party of their choice. I wish I could remember the name of the operation, but I can’t. It’s really an interesting concept and one that I’m sure isn’t right for most dealers, but I thought of it when I read your question.
Thinking more conventionally, I would try and avoid paying so much for a vehicle that I couldn’t afford to give it adequate reconditioning care. I would, however, suggest that reconditioning be performed with the greatest amount of discretion. For example, I know that there were a whole bunch of outside parties that would commonly come on my lot, perform their repair and simply present me with the bills to sign. Because these guys were my regular providers, I trusted them in terms of using their discretion as to what needed to be done. As we probably all understand, these vendors were looking out for both my interest and theirs, and I was willing to accept that under normal conditions. Today, however, I would require any and all such repairs like paint touch up, dent removal, upholstery repair, glass chips and the like to be pre-approved. I would also be sure that I had the same understanding with my own service department.
Thanks for the question.
