7 Rules To Recondition Used Vehicles “Right” Every Time

March 19, 2014

I like the way the general manager of a Chevrolet dealership in upstate New York thinks about used vehicle reconditioning.

“It’s just as important in terms of gross profit as working the deal in the front of the store,” the GM says. “I know that may sound crazy but I really believe it. The faster you can get those cars to the front infiniti-essence-concept_9-1024x687line with the right amount of reconditioning, the more actual time you’ve got to make the biggest gross you can make.”

This emphasis on the importance of reconditioning vehicles “right” has led the GM to audit and re-examine the reconditioning processes at his dealership. This examination came even though the GM and his team were anything but slouches when it comes to reconditioning and retailing used cars. In the past year, they’ve successfully trimmed the recon-to-front-line times to an average of three days, while doubling the dealership’s monthly used vehicle sales volumes to 130 units a month.

Still, the GM believes “there’s more gross to be made” if he and his team can make used vehicle reconditioning even more cost-effective and efficient. The following are 7 Rules For Used Vehicle Reconditioning that the GM and his team developed after a top-to-bottom review of what’s working and isn’t.

Rule 1: Make speed and quality your chief strategic objectives. For the GM, these dual objectives provide the basis for evaluating every aspect of his reconditioning processes and decision-making. “You ask yourself, ‘does X meet our objectives?’ If it doesn’t, you know you need to make an adjustment,” he says.

Rule 2: Show how individuals contribute to your key objectives. The dealership has a dedicated reconditioning team that includes a writer, technicians, detailers and photographers. Team members excelled at their respective tasks, but the group lacked a broader understanding of how their work affects the outcome on every car. “I broke it down and showed them what it costs us in gross profit if we lose a day in recon on a single car,” the GM says. “Once you have that conversation, you can get them to see the light and they have a greater amount of pride in their work because they’re contributing to something bigger than their own paycheck.”

Rule 3: Change payplans to match your goals. The GM has moved from a flat-rate pay plan to a team-style approach to help focus reconditioning technicians and detailers on the need for speed. The program pays individuals off their combined repair-order (RO) hours—a move the GM believes will spur more collaboration and create a disincentive to load an RO with unnecessary items that only benefit an individual’s compensation plan. “When everyone knows we all make more money by speeding things up, you’ll see things like the tech taking a car right off the lift and driving it down to the detail bay,” he says. “You can’t be fast if you’re putting fluff on the RO.”

Rule 4: Get better cars. The GM and his team now expect vehicles purchased from online auctions to effectively be “market-ready,” unless there’s a compelling reason for an exception. “It’s tough,” he says. “But you’ve got be buying good cars—late model, low mileage and good condition—to offset the older cars with higher miles that will need more recon work.”

Rule 5: Scrutinize estimated-to-actual recon costs. The GM and his managers meet daily to compare appraiser estimates of reconditioning costs to recommended work. “If we made a mistake with a purchased vehicle, and it needs significantly more than we expected or estimated, we must NOT make a second mistake and approve a much higher recon bill if the numbers don’t leave us a desirable initial sale profit,” he says. “In those instances, the car goes directly to wholesale and “we must accept that we made the mistake and move on without it costing us more money.” A benchmark: If the actual reconditioning costs exceed the estimate by more than 20 percent, I recommend wholesaling the vehicle to apply the investment in another vehicle with better gross profit potential.

Rule 6: Work to lower recon costs without sacrificing quality. The store currently averages about $1,110 in reconditioning costs, a figure the GM wants to trim by 20 percent to 30 percent. To reach the goal, his team now questions whether factory replacement parts/tires, body repairs, third-party dent/window/upholstery work is always necessary—and, if it is, to negotiate for the lowest possible cost. He also monitors policy expense to make sure the reconditioning work meets the store’s quality objective.

Rule 7: Reward the higher level of collaboration and trust between used vehicles and service. The GM understands the “tug of war for gross profit” that often occurs between the service and used vehicle departments over reconditioning. To address this risk, he has created a monthly bonus plan, paid for by the used vehicle and service departments, to reward the reconditioning team when they meet their new benchmarks for reconditioning cost, speed and quality.

I think the GM’s rules are relevant for all dealers. In addition, the GM’s appetite for continuous improvement is a model other dealers would do well to emulate: “If you keep pushing the envelope in every single area, you’re going to get better results. You simply can’t get better results if you keep doing what you’re doing.”